IT hardware firms may get import sops

Import duty on components used by India's domestic IT, computer and computer-related accessory manufacturers (the IT hardware sector) may be removed.

As a result of the import duty, imported finished products are cheaper than similar products manufactured within India.

Domestic telecom manufacturers have made this demand for some years. However, they may not be successful as it is believed that the the department of telecom has not endorsed this demand in its Budget wishlist.

A senior government official in the department of information technology told Business Standard that they were "very sure" of the finance ministry fulfiling this demand.

"We have asked for the removal the inverted duty structure so as to ensure that duty on inputs of zero duty goods is abolished," he said.

"The inverted duty structure ensured that the finished goods were cheaper than the inputs and the DIT has given the recommendation to the finance ministry to give a fillip to the sector and promote competition," the official added.

The total turnover of the electronic and hardware manufacturing sector was $11.6 billion in 2004-05 with $1.8 billion as exports and a tax contribution of $1.7 billion.

Industry association Council of Electronic Hardware Association (CEHA) had also asked the government to abolish the central sales tax on all electronic hardware and fix a 4 per cent VAT across the board on the entire hardware value chain.

"There can be no VAT on CST and it adds to the cost because it gets compounded and electronic goods competing with zero duty imports face negative protection. Abolishing CST will reduce prices and expand the market," said Vinod Sharma, president, CEHA.

The association had also recommended that the additional customs duty should be fixed at four per cent on import of all duty-free items.

"The duty-free regime has affected the manufacturing sector compared with the non-IT sector where there is huge duty protection. We have recommended that there should be no distinction between IT & non-IT products," said Sharma.

However, DIT has not endorsed the software industry's demand for removal of the fringe benefit tax and the arm's length pricing model.