Local Call

New Delhi/Calcutta, Aug. 8: The domestic telecom equipment manufacturers, peeved at the continuing tax structure that discourages them from manufacturing mobile handsets, have sought the intervention of Prime Minister Manmohan Singh.

In a letter to the Prime Minister, the Telecom Equipment Manufacturers’ Association of India (Tema) has asked, “Why should we start manufacturing in India when the duty structure discourages local production?”

The present tax structure makes its profitable to import equipment than procure it from the domestic market.

Tema president N. K. Goyal said, “While customs /countervailing duty is levied on cost, including freight (CIF) prices, a local manufacturer pays excise duty and sales tax on cost of production, distribution and marketing. This step makes imports cheaper by about 40 per cent. Even though the cellphone market has grown more than 50 per cent, no local manufacturing base has been created.”

“We are on the verge of closure, even though the telecom sector in the country is booming,” said Goyal.

The budget exempts import of finished telecom equipment covered in ITA-1 from the educational cess, but it is applicable on imports of inputs, components and raw materials, making domestic manufacturing costly.

“We have been repeatedly requesting the government to set up a Telecom Finance Corporation with a Rs 100-crore development fund to enable domestic manufacturers compete effectively with imports. We have also suggested a 10-year tax holiday for local firms and special export zones for these firms wherever they are located, irrespective of their capital investment,” Goyal said.

“While the duty on import of finished goods is between 0 to 5 per cent, one has to pay 20 per cent duty for import of components and raw materials,” said Goyal. “Sales tax also varies between 10 to 12 per cent in case of independent vendors and is 4 per cent for service providers,” he added.

It has also been suggested that the government make it mandatory for telecom service providers to procure a certain part of their equipment from domestic manufacturers.