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Mobile gain comes with slight pain

New Delhi, Feb. 17: Mobile phones of less than Rs 2,000 will now cost more, while the more expensive ones will enjoy duty benefit.

In the interim budget today, finance minister P. Chidambaram has imposed a 6 per cent excise duty on all handset manufacturers who claim tax credits for inputs, and 1 per cent for those who don’t.

Tax credits are claimed by the makers of cheap phones who assemble imported parts, locally. On the other hand, handset makers who do not import and make the parts themselves have no credits.

Previously, phones below Rs 2,000 were charged 1 per cent duty, while it was 6 per cent for those costing more.

This structure has changed, to encourage the local manufacture of handsets; those who import kits will, therefore, take a hit.

“The rates will be 6 per cent with CENVAT (central value-added tax) credit or 1 cent without CENVAT credit,” Chidambaram said.

The need to spur the local manufacturing of mobile phones and chips was felt necessary as the country imports nearly $21 billion worth of electronic goods.

P. Balaji, managing director of Nokia India, said, “The proposed incentives for the mobile phone industry are steps to encourage domestic production of mobile handsets in the country.”

However, he pointed out that the beneficial tax rate of 1 per cent did not extend to manufacturing facilities within special economic zones (SEZs) and export-oriented units (EOUs) as shipments by them are treated on a par with physical imports.

“We urge the government to extend the incentive to units operating from SEZs and EOUs as well,” the Nokia chief said.

Samsung and Nokia enjoy a one-third share each of the 11.3-million domestic mobile phone market, while new-comers Micromax, Karbonn and a host of smaller players account for the rest.

“The finance minister has given a positive signal in favour of domestic manufacturing of mobile phones,” said Pankaj Mohindroo, national president of the Indian Cellular Association.

“The clubbing of the two slabs — under Rs 2,000 retail price and above Rs 2,000 — is a good rationalisation because this will prevent under invoicing.”

Mohindroo said there would be a marginal increase in the price of phones below Rs 2,000. For example, a phone costing Rs 1,000 will see a price rise of just about Rs 30.

“The announcement that all categories of handsets which do not get input tax credit would attract 1 per cent is favourably placed to promote manufacturing,” he added.

Electronic component manufacturers’ association ElCina, however, said the announcement did not look promising for domestic companies.

“At first glance, I think it is not going to be a disincentive to trading. One per cent duty without CENVAT credit is too less,” Elcina secretary-general Rajoo Goel said.

 
 
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