Tax Anomaly On Computers Resolved

New Delhi | Updated: Jul 28 2004, 04:33am hrs
The government has finally resolved the impasse that has been prevailing in the PC and peripherals manufacturing sector after the Union Budget 2004-05.

On Monday, the finance ministry has announced the introduction of an additional import duty (under the Custom Tariff Act, section 3(3)) on finished computers.

This would mean that a duty - equivalent to that paid on the input parts and peripherals by a local PC manufacturer (Indian or MNC) - will now be levied on import of finished computers. While complete computer (including CPU-Box, monitor, keyboard and mouse) will attract 7 per cent additional duty, only 6 per cent duty will be levied on import of CPU Box. The excise/CVD on inputs would continue to remain at 16 per cent. In addition, the government has abolished the customs duty on electro mechanical parts like cabinets, key-switches, etc, from 5 per cent, and on SMPS (power supply) from 10 per cent to nil.

The idea is to prepare the industry to meet the challenge of the zero duty regime in March 2005. This will ensure that all inputs are available at nil customs duty when the customs duty on finished products like PC, monitors and keyboards is phased out.

Welcoming the move, Manufacturers Association of Information Technology (Mait) said that this will restore PC and peripherals manufacturing dynamics in India. Moreover, PC prices will continue at pre-Budget levels, Mait said.

Mait executive director Vinnie Mehta, in a press note said, In the Budget the excise/CVD duty on finished computers had been reduced from 8 per cent to nil, while that on most input parts and peripherals, it continued to remain at 16 per cent. This had resulted in an inverted tariff structure, thereby non-conducive to manufacturing.

Going further, he said, The measure had also confused the consumers as they were expecting a price cut due to the announcement. The industry was, however, not in a position to do so, due to increased input costs as a result of the tax distortion. The business in the PC industry and market had come to a complete stand-still.

On the impact on the PC prices, he said, There will be, practically, no change in the prices of the PCs, they will continue to remain at the pre-budget levels. The very marginal drop in prices due to reduction in customs duty on electromechanical parts and SMPS will be neutralised by the 2 per cent education cess.

However, it is very critical to develop the domestic market. We strongly recommend that the government considers increasing the rate of depreciation on IT products from existing 60 per cent to 100 per cent. This will not only motivate the corporates and the SMEs to invest in IT, but also subsidise their IT purchase to the tune of 14-15 per cent, he said.