The increase in customs duty will boost government’s tax collection at a time when GST collections have fallen below expectations
The government on Friday raised customs duty on various electronic products including mobile phones, microwave ovens and cameras to boost local manufacturing and create jobs.
The increase in customs duty will give local manufacturers a cost advantage over imports. The move will also help the government boost customs duty collection at a time when goods and services tax (GST) receipts have fallen below expectations.
To be sure, the duty increase will not impact imports from countries such as Thailand and Malaysia, with which India has free trade agreements.
Customs duty has been increased by up to 10 percentage points, as per a notification issued by the central board of excise and customs.
While it has been increased by 5 percentage points on items such as mobile phones, video recording devices, electricity meters and digital cameras, it has been raised by 10 percentage points on items like microwave ovens, lamps and lighting fixtures.
Currently, these items attract a flat 10% basic customs duty (BCD) in addition to integrated GST. It is the BCD that gives a tariff edge to local manufacturing as a cut in GST rate will equally benefit both imports and local production.
The rise in duty from 10% to 15% on handsets will make Apple’s iPhone models more expensive. Apple currently only assembles its iPhone SE model in India and imports the rest. The company has sought a range of incentives and tax relief from the government for it to expand its manufacturing in India.
“To foster the national initiative of Make in India, the government has raised the basic customs duty for various electronic products like mobile phones, microwave ovens, television sets, LED lamps and cameras. This would make import of these goods costlier and industry would be forced to explore domestic manufacture of these goods to reduce cost instead of importing these goods,” said Abhishek Jain, tax partner at EY.
Videocon Industries Ltd welcomed the move saying local production will get a boost. “It will also encourage foreign consumer durable companies to manufacture products in India rather than import them, and go a long way in fulfilling the goal of making the country a global manufacturing hub for a wide range of electronic goods. However, it is too early to assess the impact of the customs duty hike on product pricing,” Abhijit Kotnis, chief manufacturing officer, Videocon, said in a note.
M.S. Mani, partner, Deloitte India, said the move was unexpected so close to the Union budget. “The customs duty increase appears to improve the case for manufacturing in India. However, there could be short-term price increases for some of the products unless there is a reduction in the GST rates for such products.”
Besides incentivizing local production, the customs duty revision will also help authorities garner more revenue, said Pratik Jain, partner and leader for indirect taxes at PwC India.
GST revenue for October (collected in November) had slipped to Rs83,346 crore from the Rs92,000 crore for a the previous month.