GST regime: Handset makers want credit to be linked to value addition

Only 2% value addition takes place in printed circuit board assembly

A proposed 10-15 per cent import duty on mobile handsets, intended to promote local manufacturing, may erode incentives for local manufacturers.

The goods and services tax rate for mobile handsets has been set at 12 per cent and the government is planning to impose a basic customs duty on handsets to discourage imports.

The tax rate on imported handsets and locally manufactured ones will be almost at par, neutralising incentives for local manufacturing.

Industry body MAIT, with members like Samsung, Apple, LG, Lenovo and Asus, has made a representation to Revenue Secretary Hasmukh Adhia about this. In a letter on June 22, Nitin Kunkolienkar, president, MAIT, urged Adhia to link input tax credit under the GST to the value that manufacturers added. “The refund could be proportionately increased if more value is added locally,” he suggested.

“The government needs to focus on increasing value addition as setting up mere assembling plants has become common,” an executive with a leading manufacturer said. Local value addition in the industry is below 6 per cent.

Consultancy firm EY said in a recent report manufacturers could be granted relief by a GST refund equivalent or more than the incentives available in the current tax regime.

“The industry needs to look at investing in R&D and rather than assembling handsets,” said Tarun Pathak, analyst, Counterpoint Research.

The mobile handset market in the country is pegged at 250 million units a year. Local manufacturing has grown from 58 million units in 2014-15 to 170 million units in 2016-17, but studies by Counterpoint Research and the Indian Institute of Management, Bangalore, suggest local value addition is limited.

Only 2 per cent value addition takes place in the printed circuit board assembly, which accounts for 54 per cent of a handset’s cost. And there is no value addition in other important components like displays (16.4 per cent of the cost), rear cameras (5.7 per cent), front cameras (1.4 per cent) and design (1.3 per cent).