The Broadband India Forum (BIF) has strongly advised the government against levying customs duty on import of mobile phones after the switchover to the GST regime in order to compensate local manufacturing for the disappearance of the incentive arising from countervailing duty (CVD) that they are currently enjoying. Under GST there can be no CVD. The government has been toying with the idea of levying an import duty of 10% on mobile phones — basically smartphones — as it feels that these are not covered under the Information Technology Agreement 1 of the WTO. Strongly cautioning against any such move, BIF president TV Ramachandran, in a letter to IT secretary Aruna Sundarajan, has said even if one discounts that such an interpretation of ITA1 is erroneous, levying import duty would violate standing free trade agreement (FTA) treaties with several countries. Under the FTA, basic customs duty has to be zero. If the import duty is levied on non-FTA countries, they could divert their supplies to India through FTA countries leading to arbitrage.
Under the circumstances, BIF has suggested the best option as one suggested by a report of E&Y and BIF on incentivising domestic handset manufacturing in India under the GST regime, which suggests that local manufacturers pay the GST and the government later refunds the amount to them. This would incentivise domestic manufacturing and not violate any international treaties and there would be no scope of any arbitrage too. “This will be a more efficacious and sustainable solution for ‘Make in India’ and a big win-win for all stakeholders involved, including the government. We once again earnestly urge the government to consider this proposal,” Ramachandran has said in his letter.
India signed the FTA in 2011 of which Singapore, Thailand, Vietnam, Mynamar, Indonesia, Brunei and Malaysia are a part. The BIF says that if the government levies import duty on smartphones from these countries, it may lead to legal challenges and retaliatory actions. If it levies on countries other than these, they can always shift manufacturing to these countries and continue supplies to India through arbitrage.