PremiumThe mobile phone industry has recommended exempting handset parts that are not made in India from customs duty to attract foreign investments in manufacturing and the development of the components supply chain in India
NEW DELHI : The mobile phone industry has recommended exempting handset parts that are not made in India from customs duty to attract foreign investments in manufacturing and the development of the components supply chain in India.
In its recommendations to the government ahead of the Union budget, the industry also sought the removal of duties on sub-components that fall under the mechanics category and has proposed a customs duty cap of ₹4,000 on smartphones priced above ₹20,000 to discourage smuggling of high-end devices, such as iPhones or foldable smartphones from Samsung. This is in contrast to the current 20% duty rate.
“As we work towards bringing more global value chains to India, it is critical for domestic value addition to increase. Tariffs on inputs and components are a barrier to increasing localization. Therefore, as a principle, the government may consider creating a ‘Not Manufactured in India’ category of components that are exempt from all duties," Indian Cellular and Electronics Association (ICEA), which represents various mobile phone makers and electronics industry players in India, said.
The industry also sought the removal of smaller tariffs, such as social welfare surcharge that is calculated as 10% of the customs duty that is levied on a product, while seeking complete exemption from customs duties on mobile phone parts such as resin, lens, mesh, adhesive, sponge, and film, some of which attract 8.25% duty.
High duties on mechanics that were still being imported made the industry very uncompetitive, the industry argued while seeking exemptions from all duties on the sub-components. They added that the measure would also resolve the issue of payments made towards integrated goods and service tax (IGST) levied on imports of products that are not set off against goods and service tax (GST) paid on final products.
The industry also sought the reverting to 12% GST on mobile phones and parts instead of the present level of 18%, which was done in March 2020, on the grounds that the change led to an increase in prices for consumers, which in turn slowed down the migration of feature phone users to smartphones, while also hampering the growth of the domestic manufacturers.
While recommending the cap of ₹4,000 as custom duty on phones above ₹20,000, the industry pointed to imports of over 1 million handsets in the grey market valued at over ₹15,000 crore, on which the government was unable to collect customs duty or levy goods and service tax on retail sales, thus leading to loss of ₹4,400 crore to the exchequer.
“A small portion of domestic demand, especially some high-end phones, will always be sourced globally. The high import duty of 22% plus the increased GST of 18% has created a $1-2 billion grey market. The arbitrage is too attractive for passengers and smugglers," said Pankaj Mohindroo, chairman of ICEA.
He added that mobile phone imports dropped drastically to just 4% of the domestic market, and therefore changing the custom duty structure would not hurt the government collections from duties but would, in turn, gain from sales of phones that will move from the grey market to the organized retail market, on the back of low duties.
“The GST collection will go up by over ₹1,000 crore, and the market environment will get regularized," the industry said in its recommendations. It added that by capping the duty amount, India’s domestic manufacturing industry would get an additional boost while also providing a platform for the ancillary ecosystem, including after-sales functions, to shift to India.
The government has imposed a 22% import duty on smartphones, inclusive of a 20% basic customs duty and a 2% social welfare surcharge since FY21. India has kept a high import duty structure since 2015 in order to promote local manufacturing of mobile phones. The strategy bore fruit, with local production of mobile phones rising to ₹2.75 trillion in FY22 from ₹18,900 crore in FY15 in terms of value. Imports dropped in proportion to about 5% from 78% in the same comparison period.
Local production also led to a rise in exports that have risen to about ₹45,000 crore as of October, versus none seven years ago.