GST impact: Government may slap customs duty on imported mobile phones

NEW DELHI:The government may slap customs duty on imported mobile phones after switching to the goods and services tax (GST) regime as it seeks to give a boost to local manufacturing, ward off Chinese imports and induce companies like Apple to make in India. Such a move could, however, increase the price of imported smartphones by 5-10%.

The ministry of electronics and information technology has secured legal opinion from the attorney-general who has said that imposing customs duty on phones will not violate the Information Technology Agreement (ITA), an international pact which mandates signatory countries to allow duty-free imports of certain electronics products.

An inter-ministerial committee, comprising representatives from the finance, commerce, and telecom and IT ministries, has been set up to examine the issue in detail.

These developments follow a growing thought in the government that zero customs duty is not helping the case of manufacturing in the country.

In addition, certain exemptions that are currently available to domestic handset makers — such as no countervailing duty on imported electronic components — will have to go after the GST regime comes into force. Imposition of customs duty will protect local manufacturers.

Though no final decision has been taken on the quantum of the duty, it is expected to be 5-10%.

The government has been wooing smartphone companies such as Apple to set up manufacturing facilities in India

While the iPhone maker is set to assemble handsets in India at a plant in Karnataka being set up by its contract manufacturer Wistron, it has demanded several tax concessions. The government’s stated position is that it will not give special concessions to any single company.

The government believes ITA does not cover the entire mobile phone category. A senior IT ministry official said that according to ITA, ‘one to many push button cellular telephony’ devices are exempt. “We are saying that our phones, even feature phones, are one to one, they are not one to many, so therefore all phones are not covered under ITA. The attorney-general’s legal opinion also said that ITA did not cover mobile phones,” said the official.

India has unilaterally exempted some electronic components from countervailing duty, levied in lieu of central excise duty. But this exemption may not continue under the GST regime, which will allow minimal exemptions. The finance ministry has asked the IT ministry to instead consider a change in the customs duty regime to shield domestic manufacturing.

“The present incentives to manufacture mobile phones in India need to be continued under the GST regime. Raising customs duty is a simple solution, if ITA so permits,” said Bipin Sapra, partner, EY.

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