NET ZERO IMPORTS
that laptops and notebooks are categorised under ITA-1 |
sale is currently creating disability of 2.01 %. |
category and less value addition occurs domestically in basic |
Various States levy entry tax on use , consumption and sale of |
components of the hardware hence are imported from other |
these products , are not creditable and thereby cause disability |
countries . It is assumed that 80 % of products are imported |
of 0.15 %. |
against 20 % locally manufactured . |
VAT credit reversal |
The disability on account of the fiscal / tax factors for the IT systems and hardware segment ( notebooks , PCs etc .) is quantified below . The detailed computation of tax disability is given as Annexure A . |
VAT credit reversal on domestic procurements on intra-state purchases used in the manufacture of good for inter-state sale causes a disability of 0.22 % to the domestic manufacturers .
Blocked input VAT on goods used in provision of services
|
Factors causing disability Disability (%) Excise duty / CVD SAD on finished products
1.80 %
VAT on finished products 0.67 %
CST on procurement and inter-state sale 2.01 %
Entry tax 0.15 %
VAT Credit reversal 0.22 %
VAT on service sector inputs
0.24 %
Blocked input taxes on - Transportation fuels
0.82 %
- Electricity 0.12 %
Local IT hardware manufacturers use various services in production . Certain goods are purchased as inputs for provision of such services . Service tax paid is cenvatable whereas goods which are inputs in such services are subjected to State VAT for which credit cannot be availed as States are not empowered to tax the services . This causes a tax disability of 0.24 % to the local manufacturers of laptops and PCs .
Blocked Input taxes on certain inputs
|
- Real Estate Capex
Non-cenvatable Swachh Bharat Cess
Total Tax Disability
|
0.41 %
0.03 %
6.47 %
|
Input taxes on real estate capital expenditure , transportation fuel and electricity duty get blocked and are non-creditable . This blockage further adds to the disability to an extent of |
According to the comparison made in the table , between |
1.35 %. |
imported goods ( laptops / notebooks ) vis-à-vis locally |
Non-cenvatable Swachh Bharat Cess |
|
manufactured product , the difference in selling prices dues to taxes is around 6.47 %. The key factors due to the taxes which are causing / sustaining disability for Laptops / notebooks are summarized below .
Differential Excise duty / CVD SAD on finished products
When domestic manufacturers import components used to
|
Swachh Bharat Cess , levied at the rate of 0.5 % on all taxable services , is non-creditable and amounts to 0.03 % disability for local manufacturers .
B . Business environment disability
The disability on account of the physical / business environment factors for the IT systems and hardware segment
|
manufacture end products , duties such as on countervailing duty ( CVD ), SAD and education cesses are levied in addition to the basic customs duty ( BCD ). While excise duty is paid on transaction value , CVD is levied on 80 % of the MRP ( or after abatement of 20 %) on imported items . This causes a disability to an extent of 1.80 % to the disadvantage of local manufacturers .
High cost of financing working capital due to high interest rates
High interest rates in India are among the factors that increase the cost of manufacturing electronic products in the country . Therefore , despite having similar receivable and payable cycles as in other countries , the relatively higher rates of interest create a significant disability for domestic manufacturing in India . The disability due to high cost of financing is 1.8 %
Inadequate availability of components in India at the required scale and at competitive prices
While there is a huge demand for electronic products in India , and a part of this demand is met by domestic OEMs , it is not translating into proportionate domestic manufacturing . Prominent among the reasons for this is the fact that OEMs find it beneficial to import manufactured sub-assemblies directly from other countries . A significant reason for sub- assemblies not being designed or manufactured in the country ( despite adequate manufacturing capacity ), pertains to the absence of a component ecosystem in India , apart from high
It may be noted that there is a difference in the duty burden borne by the MRP based and non-MRP based product manufacturing vs trading . In the case of non-MRP based duty items , sold to end customer , manufacturers pay higher duty today as the duty is applicable on selling price which is arrived at after adding manufacturer ’ s own margin . However , a trader pays less duty ( CVD ) because in this case , the duty applies to the import price of the finished goods , which does not include the trade margin . As a result , trading becomes more attractive than manufacturing .
VAT on finished products
Due to the 20 % abatement on MRP value for imported finished products , value of imported goods is less by 20 %. Thus , the tax base for imported finished goods is lower than the tax base for domestically manufactured goods . This causes a disability of 0.67 % for local manufacturers .
Non creditable CST and Entry tax
CST at the rate of 2 % is applicable when domestic manufacturers procure components from other states which cannot be set off against Sales Tax ( CST / VAT ) payable on end products . This increases the cost of procuring components for domestic manufacturers .
Non-off settable Central Sales Tax paid on components procured from other states in the country and 2 % CST on inter-
( notebooks , PCs etc .) is quantified below :
Factors causing disability Disability (%) Financing of working capital Disability due to inadequate components availability
Inventroy carrying cost 2.9
Additional freight cost due to import of 1.7 components
High manufacturing and designing cost High interest on design-related expenses
High manufacturing expenses ( e . g ., power , real estate , depreciation , manpower etc .)
Other , including high international marketing expenses
Total BE Disability
0.1 1.1
1.8 4.6
1.2
1.8
9.4
Spotlight on Indian Electronics 2016 | 69