With Budget 2017 Smartphones Price To Increase
The smartphone’s price would likely to go up as the government proposes Union Budget 2017 that levy a special additional duty of 2 percent on a component that accounts for nearly 30 percent of the manufacturing cost of the phones.
It means the handset manufacturers, both the domestic or foreign, would have to pay an additional duty if they import the Printed Circuit Boards (PCB) used in the smartphones.
The decision was announced on Wednesday in the Union Budget for the 2017-18 fiscal, that earlier had put paid to the hopes of a drop in handset prices in alignment with the government’s push towards the digital economy.
As the digital economy encourages the use of the smartphone for just about everything that includes buying goods and services through the e-wallets services.
Naveen Aggarwal, the partner (tax) at KPMG, said that the additional duty would be passed on to the Indian consumer as the country “doesn’t have the capacity to manufacture the PCBs from scratch.”
Industry experts have believed the move could persuade the domestic handset manufacturers to shift themselves from assembling the smartphones in the country with an imported parts to full-time manufacturing.
Mr.Aggarwal has also warned that the country might lose the manufacturing war with countries like Vietnam and Indonesia in the process.
In last year’s budget, the government has levied a 2 percent special duty on the populated PCBs used in the mobile phones, laptops, and in the personal computers.
The proposal has triggered an outrage in the industry, which said that the ecosystem for the local manufacturing of these components was not readily available in India. The duty was rolled back in May 2016 consequently.
Click here for more Latest Technology News
Some analysts felt the latest decision could prove the counter-intuitive to the finance minister Arun Jaitley’s announcement in increasing the allocation of Modified Special Incentive Package Scheme (MSIPS) and the Electronic Development Fund (EDF) to Rs 745 crore.
Aimed at promoting an electronic manufacturing, MSIPS provides a capital subsidy of 20 percent in the SEZs (Special Economic Zone) and 25 per cent in non-SEZs, in the form of reimbursement of excise for the capital equipment. For high-capital investment projects, it provides for the repayment of central taxes and duties.
EDF was created to develop the electronics system design and manufacturing (ESDM) sector to achieve a “net zero imports” by 2020.
It is more like the “fund of funds” to participate in the professionally managed “daughter funds” which in turn would provide capital risk to the companies that develop new technologies in the area of information technology (IT), electronics, and nano-electronics. The EDF would attract a venture fund, seed funds, and angel funds towards the R&D and innovation in the specified areas.
Parv Sharma, the research associate at Counterpoint Research, said that India being the fastest growing smartphone market in the world, the government’s latest move with the budget would not be active since India doesn’t have the “fabrication units” to produce those components.
The industries were expecting for the government to pass a phased manufacturing plan, which includes the expansion of a differential duty structure to include five more elements and to make the transition easier for the handset makers.
“But imposing a SAD on PCB which could not be done here was a counter-intuitive. It means that the announcement of an extra allocation under MSIPS and EDF might not help after all,” a top industry leader said.
The government has also applied a differential duty structure to attract the foreign handset and component makers to start the actual manufacturing in the country. Under the structure, if a manufacturer assembles the phones locally, then it just pays a 1 percent duty, instead of the 12.5 percent on a phone that was imported.
There was also a tax differential on headsets, battery, and adapter. If a handset maker buys all the three from the domestic companies, then it pays only 2 percent, instead of 12.5 percent when imported.