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Handset makers hope new govt rationalises local tax structures
May, 23rd 2014

Handset makers in India want the new BJP-led government to rationalise local tax structures and reduce import duty on devices under Rs2,000 from existing 7% to 1%, on an immediate basis. In the long term, most device makers want the new government to implement a semiconductor policy that can help in creating a much-needed ecosystem for local manufacturing of handsets.

As part of this policy, creation of manufacturing hubs near ports where companies can get tax holidays and other fiscal benefits, on the same lines as a special economic zone, will attract vendors to invest in building fab units.

"Implementing GST or uniform sales tax will avoid forced whole-selling by brand distributors which is a deterrent to the health of a brand," said Vikas Jain, co-founder of Micromax Informatics, the largest home-bred mobile phone maker. Jain added that besides clear demarcations in duty structure, the new government — to be sworn in on Monday — should continue impetus on local manufacturing by offering concessions to the industry. Micromax, the third largest handset maker in India, has plans to manufacture handsets in the country but is awaiting tax sops.

The previous government had approved setting up of two semiconductor water fabrication (FAB) manufacturing facilities, to promote manufacturing of electronics, including handsets in India. The Congress-led UPA government estimated that by 2020 India will be importing electronics product worth $400 billion, which it wanted to reduce.

The new government has to take a holistic view, said Karbonn Mobiles managing director Pradeep Jain, but should start by lowering the import tax to 1% on handsets under Rs2,000. Jain added that a higher duty had forced handset selling companies, including Karbonn, to increase prices in the last fiscal, which, Jain added, had impacted a large number of consumers. India's handset making industry is changing colours as cheaper smartphones drive penetration of multimedia devices into the multi-billion dollar market where a large majority of people still use featurephones. According to IDC, about 78% of Indians still use featurephones while only 22% use smartphones, as of December 2013.

According to Mahesh Uppal, director at Com First (India) Ltd, affordability of smartphones will be critical for expansion of broadband in India, as most people will experience the internet for the first time on smart devices. "The government must ensure that cost of handsets does not rise because of any additional regulatory charges — whether these are customs duties or excise charges or licences fees. On one hand, try not to increase end user price by additional levies and on the other, focus on incentivising domestic manufacturing," he added.

India's smartphone market has nearly tripled to 44 million devices shipped in 2013, compared to 16.2 million shipped over 2012, as per IDC. In the three-month period ended March 2014 alone, 14.5 million smartphones were shipped into India, of which Samsung, Micromax and Nokia had cornered 67% share, according to CyberMedia Research.

Jayanth Kolla, co-founder and partner at telecom research firm Convergence Catalyst, pointed out that since most of the 150-180 million mobiles devices being sold in India are imported, the government should look at encouraging fab units and component makers to set up shop in India, which will have a ripple effect on other smart devices and electronics manufacturing in India. "Also, considering the growing market share of domestic brands, it is about time that local manufacturing of mobile devices takes off, and a key requirement for this is the semiconductor fabs and the components ecosystem to be established in India," he added.

India's smartphone market is expected to boom in 2014 as entry level smartphones may be available for as low as Rs2,500, which may further propel the transition from featurephones to smartphones. The market has become extremely attractive for multinational companies including Apple, Sony and Motorola whose sales have risen in a short span of time.

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