Electronic Hardware: A Miniscule Sector

The Indian electronics hardware industry is still in the development phase, and is able to capture a minuscule share of the global electronics hardware as compared to her neighboring Asian countries like the People’s Republic of China, Taiwan, South Korea etc. India is almost absent in global markets with Indian electronics hardware industry needing a major boost to compete with China in cost – effectiveness and numbers.

The differential duty structure to sustain manufacturing in the Indian context is not possible and the inverted duties due to ITA-1 & FTAs is plaguing hardware manufacturing. Moreover, domestic taxes and levies impose fiscal disabilities, for example, the cascading impact of CST on components detrimental for finished products manufacturing. Also the high cost of finance and power add to fiscal and physical disabilities.

• Excise duty – 8% for entire electronics industry value chain ensuring no Convat overflow (Excepting for mobile handset manufacturing).
• Abolish CST on all Electronics Hardware immediately.
• 4% VAT across the board on entire on Hardware value chain.
• Manufacturing ensuring minimum 30% domestic value addition to be given Income Tax Exemption for 10 years – revive Section 80HHC benefits for DTA units
• Inverted duties due to ITA-I and FTAs need to be corrected.
• No differentiation between IT and non-IT segments – treat at par for domestic taxes / levies to avoid classification conflict.
• Same classification of electronic goods across all States of India under VAT as per Customs / Excise HS Code to ensure same treatment across the country.
• Set up a Development Fund to compensate for high interest rates and other infrastructural disabilities – 5% and,
• Remove condition of minimum 16% applicable duty on DTA sale by EHTP / EOU unites; allow actual 50% of applicable duty on DTA sale.

 Telecom Industry

For the Telecom sector, we have quite a complex and burdensome tax structure. There are a variety of taxes and levies including 12% service tax, 6-10% license fee, 2-6% spectrum charges, 1.5% access deficit charge, 2% education cess, 1-2% due to the huge bank guarantee of the government ect,. Besides customs and excise duty, aggregating to a disadvantageous position and adversely affected our competitiveness viz.-a-viz. other countries and particularly our neighbor –China.

We are of the view that a single taxation regime should be introduced to make the tax structure hassle free and investor friendly. Towards this end, we would also like you to consider the following:

• Reduction of Customs Duty on all Capital Goods (including used equipment with condition for useful life and without age restriction) to Zero per cent.
• Raw Material / Inputs/Components (including dual use) required to manufacture electronic items including telecom equipment to zero per cent.
• The excise duty on all domestic telecom products should be reduced from 16 to 8 percent barring hand made sets. This would reduce the cost, and make the products affordable to the common man.
• Abolish CST of 4 % for telecom equipments.

 Consumer Electronics

In India, total level of indirect taxes on consumer electronic products is more than 30% High level of Tax encourages gray market. To add to the woes of Industry, there is multiplicity of Taxes. Higher level of Taxes coupled wit complex taxation system increase transaction cost for Industry.

It is therefore, imperative that the tax benefits provided for Export Oriented Units (EOUs) from the export of article including computer software under section 10B should be available on a withdrawal on going basis without any sunset clause. Withdrawal of the benefit would adversely effect the investment by the existing or new entrepreneurs.

Custom duty on Raw Material should be 0% on Components 5% and Finished Product 10%.

Customs duty should be ‘zero’ on all capital goods required by the Electronic Hardware manufacturing units, on actual user condition.

To encourage manufacturing in India, it is submitted that Import duty of 10% levied on Set Top Box.

As LCD TV has tremendous potential of growth, it is suggested that parts and sub assemblies of LCD TV should be levied Custom Duties of 5%.

It is suggested that Automatic / Semi automatic/manual conveyor system for assembly of electrical and electronics equipment and movement of finished goods should attract NIL customs duty.

Moulds required for manufacturing of parts of electrical equipment should attract NIL duty. As on date, moulds imported for cabinets for CTV attract NIL duty, whereas moulds

IT products are charged State VAT @ 4% while consumer electronic products are charged State VAT @12.5 Uniform VAT of 4% on all IT & consumer electronics sector including their components be imposed.

 Chemicals, Fertilizers and Petro chemicals

Propane is a vital feedstock for the Gas based Petrochemical Industry in India and elsewhere in Asian region. In the Indian Context, the usage of propane has gained importance in the gas, crackers due to continuous decline in the production of natural Gas.

However, the basic Customs Duty on Feedstock (propane) Building Blocks (Ethylene, Propylen) and end products (plastic raw material) are all kept at 5%.

It is important to note that duty on polymer raw material in India is one of the lowest in the region and at par with those prevailing with most of the ASEAN Countries for Intra ASEAN Trade. Exemption of Excise duty or concessional rate may be granted for purchase of Plant and machinery and spares for units manufacturing Essential commodities.

Creation of a sustainable resource for fibre (wood) by allowing industrial plantation on degraded forestland.

Creation of a Technology Upgradation Fund on lines of Textile Industry to upgrade the technology and scale.

Lower overall tax burden, especially indirect taxes – Excise duty should be reduced to 8%. The same would increase the demand for paper and would thus offset any loss arising to exchange.