DoT for 15-yr tax holiday for domestic mobile manufacturing, lower VAT

Says domestic market demand for mobile phone is expected to hit 1 lakh crore for the first time in 2015

To rejuvenate mobile phone manufacturing in the country, the department of telecom (DoT) is believed to have sought a 15-year tax holiday on domestic production of handsets and a lower uniform value-added tax rate among other relaxations.

The DoT’s investment cell recommendation, which comes ahead of the Budget next month, is based on input from industry bodies. According to a report by the Indian Cellular Association, mobile phone exports are expected to fall to zero in 2015 from the Rs 2,450 crore estimated in 2014, mainly due to suspension of handset production at Nokia’s Chennai plant.

Exports of mobile phones have been declining after touching a peak of Rs 12,000 crore in 2012. Exports crashed by over 70 per cent to Rs 2,450 crore from Rs 11,850 crore in 2013.

The DoT has also suggested that finance ministry levy uniform value added tax of four to five per cent compared to 8.8-15 per cent VAT levied across the country. This, if implemented, will lead to reduction of mobile phone prices.

Besides, the department has sought extension of section 35 AD of Income Tax Act on mobile phone, tablets and their accessories producers which allows 150 per cent deduction of capital investments for calculating tax.

The government has set up a joint task force with industry to rejuvenate nation's mobile phone manufacturing ecosystem with a view to achieve production of 500 million units of mobile handsets by 2019.

As per the office memorandum, the terms of reference of the task force includes promotion of large scale mobile phone manufacturing activity to achieve production of 500 million units of mobile handsets by 2019 which in value terms amounts to output of Rs 150,000 crore to 300,000 crore.

It is estimated that this large scale production can create employment opportunity for 15 lakh people.