India-made phones to be cheaper

Nokia and Samsung, which manufacture handsets in India, will have the option of paying a lower excise duty at just one per cent

To boost domestic manufacturing of mobile handsets, Finance Minister P Chidambaram announced restructuring of excise duty at six per cent for all categories. “To encourage domestic production of mobile handsets (which has declined) and reduce the dependence on imports (which has increased), I propose to restructure the excise duties for all categories of mobile handsets. The rates will be six per cent with CENVAT credit or one per cent without CENVAT credit,” Chidambaram said.

With this, companies like Nokia and Samsung, which manufacture handsets in India will have the option of paying a lower excise duty at just 1 per cent (without taking CENVAT credit), while importers will have to pay the six per cent duty besides the import levy. “Companies manufacturing in India will also have the option to pass on the benefit to end consumers, which will reduce prices of India-made mobile handsets,” said Bipin Sapra, tax partner, EY.

The move will have a negative impact on the entry-level handsets costing up to Rs 2,000 because there was no excise duty in the category earlier. The mobile handset market in India is estimated at 220 million units per annum, of which close to 25 per cent is priced up to Rs 2,000. “The duty on entry-level handsets will force companies to increase prices by a few percentage points,” said SN Rai, co-founder, Lava Mobiles.

Chidambaram had, in Budget 2013-14, increased the excise duty by five percentage points from one per cent to six per cent on mobile handsets priced more than Rs 2,000.

P Balaji, MD, Nokia India, said: “The beneficial CVD rate of one per cent as proposed in the Budget speech, does not extend to mobile phone manufacturing operations set-up within SEZs and EOUs, as the clearances by these units to the domestic tariff area are treated at par with physical imports into India. This will exclude larger manufacturers like us  from availing the benefit.”

Pankaj Mohindroo, president of Indian Cellular Association, said the announcement does not benefit the handset manufacturers. “There was a six per cent excise since the last Budget in any case. Now the entry-level segment will also have a six per cent excise duty, which means prices will increase in this segment as well. However, we have to go through the fine print before coming to any conclusion,” he added. “Restructuring the excise duty could encourage local value addition, which is aligned to the national ICT and telecom objectives,” said Jaideep Ghosh, partner, KPMG India.

PLUSES & MINUSES

Proposal: Pay six per cent excise with CENVAT credit, or 1 per cent without CENVAT credit
Change from previous Budget: Excise duty increases for entry-level costing up to Rs 2,000 handsets, by five percentage points
Benefit: Domestic makers have the option to pay lower excise at just 1 per cent

No change for imports
Size of handset market: 220 million per annum
Below Rs 2,000: 25 per cent of total volume
Possible outcome: Prices may come down for India-made handsets, entry-level devices to be dearer