NEW DELHI: India is close to imposing basic customs duty (BCD) of at least 10% on smartphones, making imported devices more expensive than locally made ones and bringing relief to the likes of Foxconn and Wistron that have invested heavily in factories in the country.
The move is also expected to stimulate investments of more than Rs 1,000 crore that have been on the fence for lack of clarity on price differential incentive as India shifts to goods and services tax (GST) regime. Currently, the duty structure makes imported phones expensive than locally made ones, but that difference was set to be evened out under GST.
Officials in the ministries of commerce, revenue, and IT and electronics said the Centre is close to a final decision. It’s expected shortly before GST rollout. “There have been discussions… We would take a call soon,” a finance ministry official told ET. Two government officials, who did not wish to be named, confirmed that the commerce department had recommended customs duty higher than peak rate of 10% on smartphones.
They also said the ministry suggested duty between 10% and 20% on some other electronic products.
Some feel the BCD on smartphones should be around 15% but a final call is yet to be taken.This follows a legal opinion from the attorney general that smartphones were not covered by the Information Technology Agreement and the country could impose customs duty on them. ITA is a global agreement under which countries have committed to exempt certain electronic and telecom products from customs duty. ITA was signed in 1996 when smartphones did not exist and hence cannot be given zero-duty status, as per the legal opinion.
The IT ministry has been saying that the government will ensure that the incentives for local manufacturing will remain intact even under GST.
Existing tax structures make smartphone imports 11.5% costlier than India-made handsets, creating a duty differential that incentivised local manufacturing. But a 12% GST rate on mobile phones would have wiped away the advantage.
MAKE IN INDIA BOOST
The government’s decision on BCD should come as a shot in the arm for Make in India, with mobile phone manufacturing being the bedrock of the programme. More than 70 mobile phone and component companies currently make in India for the local market.
Among the most recent entrant is contract manufacturer Wistron Corp, which makes the Apple iPhone SE at its Bengaluru plant. The world’s largest contract manufacturer Foxconn has set up five assembly plants in Andhra Pradesh and is building another in Maharashtra.
The world’s largest phone brand Samsung has announced an investment of Rs 5,000 crore to double mobile phone manufacturing by 2020.
About 175 million handset units valued at Rs 90,000 crore were produced locally in FY17, up from more than 110 million handsets worth Rs 54,000 crore in the previous year, according to the Indian Cellular Association (ICA). As much as 80% of the phones sold in India in the March quarter were locally made, as per Counterpoint Research.
The growth in the quantum of locally made phones and investments by Indian and foreign companies is expected to accelerate if the differential is maintained, experts have said, adding that India could well become a global manufacturing hub for many brands. Samsung has said it plans to start exports from India by 2020.
Besides exports, the decision to impose BCD would also clear any roadblocks in the way of a longterm manufacturing roadmap that offers tax benefits to those making mobile phone components within the country. It would also increase local value addition to 35-40% from the current 6%.