Electronic Manufacturers Want Duty Woes Addressed

Electronics industry players want the government to address the decade old anomaly of inverted duty structure that has eroded domestic manufacturing base and is still hampering its development.

Due to the inverted duty structure imports of finished goods are encouraged and the import of semi-manufactured goods and components are discouraged which can be used for manufacturing completed products in the country, said Ashok Chandak, Chairman of Indian Electronics & Semiconductor Association.

India is a signatory of ITA 1 as a member of World Trade Organisation. Under the pact, member countries should allow duty free import of products falling under eight categories covering telecom, computers and semiconductors like mobile phones and electronic chips.

While ITA allowed import of finished product duty free, domestic manufacturers paid taxes on importing components used for making a complete unit which makes indigenous production of electronic products expensive hitting the hardware production in India.

Mr Chandak said although the government addressed some of the issues related inverted duty structure in last budget, the same is offset by high finance cost and infrastructural woes.

"Problem of inverted duty is always prevailing due to the fact that India has always been a signatory to number of of Free Trade agreements with different countries. This problem became prominent after India signed ITA-1 in 1999 which was implemented in 2005," ELCINA Electronics Industry Association of India Secretary General Rajoo Goel said.

Government has imposed basic customs duty at 10 per cent on specified telecom products that are outside the purview of the Information Technology Agreement.

Mr Chandak said that cost of producing an electronic product manufactured in India is about 4 to 23 per cent higher than an imported product.

The excise duty of about 12 per cent that Indian companies are required to pay is offset by 12 per cent countervailing duty and central sales tax of 4 per cent is offset by special additional duty imposed on imports.

However, VAT which is in the range of 4-12.5 per cent, is paid by companies in India only which adds to disadvantage.

"Streamlining the tax structure and implementation of GST (goods and services tax) will help resolve this problem," Mr Goel said.