With an eye to boost revenues as well incentivising domestic manufacturing by curbing imports of goods, the government on Friday hiked basic customs duty on mobile phones and a host of other electronic goods like television sets and microwave ovens. Accordingly, basic customs duty on TVs, microwave ovens and LED lamps have been doubled to 20%, while that on mobile phones, DVR players, smart electricity meters and closed-circuit cameras have been raised to 15% from the earlier 10%. Though the decision comes on the back of a decline in the goods and services tax (GST) revenue to Rs 83,000 crore in October from an average of nearly Rs 90,000 crore in the three preceding months, the rise in duty particularly on mobile phones will hit Apple hard as it will make most of its iPhone models expensive at a time its revenue growth in India is slowing.
Barring Apple, most other manufacturers assemble their products within the country; Counterpoint Research data show that nearly 8 out of 10 phones sold in the country are assembled domestically. For instance, South Korean major Samsung Electronics assembles most of the phones it sells in the domestic market within the country itself. Apple, on its part, only assembles its iPhone SE models in India and imports its other models. The company has sought a range of incentives and tax relief from the government for it to expand its manufacturing in India, but the government has so far not accepted its demands. From the government’s revenue point of view, the move makes sense as it expects that due to pending refunds, the GST revenue may fall further in subsequent months, so alternative areas need to be tapped to raise resources.
For perspective: The budgetary estimates for customs duty for the current fiscal has been pegged at Rs 2.45 lakh crore, which constitutes nearly 13% of the total tax revenue estimates. In the pre-GST regime, customs duty comprised basic customs duty (BCD), countervailing duty (CD) and special additional duty (SAD). However, after GST was rolled out in July, CD and SAD have been subsumed under the integrated GST while BCD continues to be levied on imports. According to government data, revenue collected under customs duty was Rs 1.27 lakh crore in April-October period in the last fiscal but during the current fiscal in the same period it is only to the tune of Rs 94,000 crore.
Another area of concern has been that the country’s goods imports which in the seven months ended October rose 22% to $256.4 billion from a year earlier. “It is important to note that these measures have been taken under emergency powers under the customs laws. Some announcements can be expected in the upcoming Budget about changes and policy direction in this regard. Manufacturers under other industry segments may also push for similar protection from imports,” said Pratik Jain, leader, indirect tax, PwC India.
“To foster the national initiative of ‘Make in India’, the government has raised the basic customs duty for various electronic products like mobile phones, microwave ovens, television sets, LED lamps, cameras.
This would make import of these goods costlier and industry would be forced to explore domestic manufacture of these goods to reduce cost instead of importing these goods,” said Abhishek Jain, tax partner, EY India.