While the government's move to change excise duty structures on mobile phones and tablets will promote domestic manufacturing, the price of smartphones, which are mostly imported, will increase by 3-5 per cent, experts say.
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Excise duty structure for mobile handsets is being changed to one per cent without central value-added tax, or Cenvat, credit or 12.5 per cent with Cenvat credit, Finance Minister Arun Jaitley said in the Budget presented on Saturday.
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Local manufacturer can claim duty benefits on VAT paid on purchase of various input materials. The increase in Cenvat credit will give benefit to domestic manufacturers against those importing such items.
"The prices of mobile handsets will increase by three to five per cent. However, this move will push handset makers to start manufacturing in India. This is in line with the government's Make in India plan," said a telecom expert.
"Increase in CVD (countervailing duty) will increase the price of imported products, but domestic manufacturers like Samsung and Micromax stand to gain from this," said Indian Cellular Association, national president, Indian Cellular Association.
He said the government's announcement on Cenvat leads to increase in countervailing duty on imports to 12.5 per cent on imposed on imported mobile and tablets, which is going to make a strong case for manufacturing in the country.
Commenting on the service tax increase, Cellular Operators Association of India director-general Rajan Mathews said: "The bills will be expensive by half a per cent. It's a tax and has to be passed on and collected from the end-user. So it makes the overall bill more expensive for the consumer."
Prashant Singhal, global telecommunications leader at EY, said: "Customers will have to pay more for telecom services with the increase in service tax and import duty on handsets."
At present, as much as 70 per cent of the mobile handsets sold in India are imported. With the rate of duty doubling, it would force companies to manufacture in India because otherwise the handsets will become very expensive.
According to Mathews, the enabling provisions for levy of Swachh Bharat Cess have been introduced, which will be treated as service tax. In case Cenvat credit is not allowed, the suggested cess at two per cent would increase the effective service tax rate to 16 per cent - a huge cost for the telecom industry.