New Delhi: The government's strategy to slowly raise taxes on knocked-down kits and parts of mobile handsets is at odds with Apple Inc's plans to import more parts and increase the local assembly of handsets.
At present, Apple works with Taiwanese contract manufacturer Wistron Corp to assemble the iPhone SE in Bangalore. The plant went on stream in May and the first iPhone SE models from that plant rolled out in June with the tag "designed by Apple in California, assembled in India".
Commerce ministry officials said Apple executives have insisted the tax-waiver should continue on parts that were being imported for assembly in Bangalore.
"The whole problem is we cannot give one single firm exception from our tax laws and we have taken a policy decision to change the inverse structure of our import duties where we allow knocked-down kits to be imported for screwdriver assembly of mobiles and tablets.
"India is a big market. If someone wants to sell here, then that firm should bring its eco-system here and sell to take advantage of low taxes on local products," officials said.
The drive to start taxing electronics goods and their parts used in low-value screwdriver assembly came after India realised that electronics was the third largest component of its rising import bill, after gold and oil.
According to commerce ministry data, import of phones and accessories alone grew from $665.47 million in 2003-04 to $14.3 billion in the 11 months of 2016-17 till February. In 2014-15, combined electronics imports, which include smartphones, tablets and computers, were valued at $36.9 billion.
Trade analysts feel electronic imports will surpass oil imports by 2020 and could be an astounding $300 billion if current growth trends continue. To reverse this trend the government wants to work in taxation changes to make imports of fully built mobile phones costlier, and raise component duties progressively to force component manufacturers to shift base to India.
Officials said Apple and other smartphone makers were given an opportunity to import components duty free to start with; and over a period of five years they were expected to increase the degree of indegenisation to 50 per cent by value.
At current import duty rates, local assembly could result in a 15 per cent saving on duties compared with imports. However, if more parts could be made in India, savings would be in the region of 25-30 per cent. To achieve this, huge investments in factories and training of human resources are needed and manufacturers are willing to make that investment only if India offers terms comparable to markets such as Vietnam.