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Representational image (Photo: Mint)
Representational image (Photo: Mint)

Tariff protection for boosting local production likely for limited period

The goal is to incentivise investments into local production of electronic items without making tariff protection a permanent feature, said a govt official

New Delhi: The basic customs duty on import of select electronic items like mobile handsets, television sets and their parts may be eased out after a period as the duty is meant only as a temporary protection for local producers during the early stages of their capacity building.

The government is looking at introducing end dates for the higher import tariff on these items, said a government official. The goal is to incentivise investments into local production of electronic items without making tariff protection a permanent feature. Introducing end dates for various tariff measures meant for improving local value addition will also signal to the rest of the world India’s credentials as an open economy.

“There is a thinking in this direction but nothing more can be said at this stage," said the official, who spoke on condition of anonymity. In 2018-19 union budget, basic customs duty (BCD) on mobile handsets was raised from 15% to 20%. A 20% customs duty is levied on television imports from December 2017. Various parts of mobile handsets now attract 15-20% BCD and a 5% BCD is applicable from 1 October on open cell used in television making.

Under the phased manufacturing programme to promote indigenous manufacturing of mobile handsets, starting from FY16 budget, the government has hiked customs duties in a phased manner on mobile phone handsets and components including charger, battery, microphone, receiver, key pad, USB cable, printed circuit board assembly and camera module. Starting 1 October this year, government has also imposed 10% customs duty on display assembly and touch panel of handsets.

BCD is the extra tax that is applicable on imports over and above all the other indirect taxes that are equally levied on imports as well as locally produced items and represents the level of tariff protection available to local producers.

Along with duty protection, local producers are also eligible for benefits like duty free import of specified capital goods. The government has a goal of scaling up the electronics industry including exports to $400 billion by 2025.

The idea of introducing end dates for the higher tariff is significant considering a number of phased manufacturing programmes for many consumer goods sector including television sets and air-conditioners among others.

Experts said that the policy focus is on making the country self-reliant which entails supporting the identified manufacturing sectors to move up in the global value chain with both fiscal and non-fiscal measures. “Any further measures, tax or otherwise, may be considered taking into consideration the overall sectoral or product requirements and the support the ecosystem needs for consolidation and aligning them with other bilateral or multilateral commitments and the overall trade strategy," said Rahul Shukla, executive Director, PwC India.

The hike in customs duty on mobile phones and components has led to many countries including the US, EU and China dragging India into the dispute settlement mechanism of WTO.

India, which is a signatory to the 1996 Information Technology Agreement (ITA), is required to eliminate tariffs on a range of products, including mobile phones. The US and others have complained that imposition of tariffs on information technology products by India are against the principles agreed under ITA.

Boosting local production is a priority for the Narendra Modi administration, which is grappling with a contraction in the economy due to the pandemic and the national lockdown meant to fight back infections.

Asit Ranjan Mishra also contributed to this story

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