Budget 2018: Custom duty rejig may make smartphones, gadgets costlier

Through this, the government will address inverted duty structures-finished goods facing lower duty than the inputs that go into them

Make in India is set to get a major boost in Budget 2018 through a customs duty rejig, according to a report. However, these measures are likely to pinch customers' pocket as they could make imported high-end mobile phones and electronic goods expensive. Basic customs duty may be imposed on components such as printed circuit boards, camera modules and displays that are allowed duty-free entry now.

Custom duty rejig in Budget 2018

Customs Duty may be revised on certain other selected goods. Through this, the government can address inverted duty structures—finished goods facing lower duty than the inputs that go into them.

Post implementation of Goods and Services Tax (GST), customs duty is the only levy which still falls under the central government's domain.

In December 2017, the government had raised basic customs duty levied on imported mobile phones to 15 per cent, up from the 10 per cent, which it had levied earlier on July 1 last year.

The government has imposed 15%  basic customs duty on mobile phones and parts like charger, headsets, battery and USB cable with immediate effect to boost domestic manufacturing.

However, this decision drew flak from tax experts.

"With BCD exemptions available under FTA as well, their impact will also require a separate evaluation on Make in India initiative," Rahul Shukla, executive director, indirect tax at PwC, told Economics Times.

Make in India programme

As part of the Make in India programme, the government is planning to make India a manufacturing hub rather than a destination where goods are assembled. The engineering sector in India attracts immense interest from foreign players as it enjoys a comparative advantage in terms of manufacturing costs, technology and innovation.

Today, Indian manufacturing companies in several sectors are targeting global markets and are becoming formidable global competitors.

Reality check - Smartphone users, mobile phone assembly

There are over a billion mobile phone users in the country. According to a new study by US-based media agency Zenith, India currently has in between 300-400 million smartphone users. There are about 650 million mobile phone users in India, and just over 300 million of them have a smartphone, according to Counterpoint Research. Two out of three Indian mobile users – or roughly 433 million people – are planning to upgrade their phones in the next year, according to Indian Express.

7.5 million units of smartphones and 33.7 million units of feature phones were shipped in CY Q2 2016. More than two-thirds of the smartphones sold in the market are assembled within the country.

But the value that manufacturers add to the end product is still minimal. Because of a loophole in the law that charges no tax on imported phone components, home-grown handset makers bring in phones as semi-knocked down (SKD) units, in which all the key high-value components are already soldered to the main printed circuit-board.
 

This circuit board, and the microscopic chips on it accounts for over half of the value of the phone.

A typical mobile phone assembly line begins with the hand-kit, which includes plastic volume and power buttons and the proximity sensor sleeve (which makes your screen go blank during a call). The radio frequency is tested and the circuit board is screened; Wi-Fi antenna and cameras are added and the battery is pasted, the front housing of the phone (the touch screen, panel) is added, the LED and mic are tested, the OS is loaded and a dummy SIM is inserted to check if everything is synchronised. After this, the battery is charged, and a sample from each lot is tested for durability and pressure resistance. The rest of the units head to the packaging line, where the phone is placed in its gift box with the accessories and the instruction manual.