The BCD of 20% is instead causing an annual loss of Rs 2,500 crore to the exchequer due to rampant smuggling of these devices that is also destabilising the business of Indian retailers who stock these phones, an association of manufacturers said in a letter to the Department for Promotion of Industry and Internal Trade.
“We have recommended that BCD should continue @ 20% but with a cap at Rs 4,000 per phone for phones above Rs 20,000. This means that a phone worth Rs 40,000 will carry an effective duty of 10%,” a person aware of the letter written by the India Cellular and Electronics Association of India (ICEA) to DPIIT secretary Guruprasad Mohapatra told ET.
Apple, Oppo, Vivo, Foxconn and Flextronics are some of the major electronics manufacturers that are members of the association.
“The industry has pointed out that owing to the BCD, there is large-scale smuggling of highend phones and creation of a grey market, which in turn, is causing loss to the exchequer,” they said in the letter.
They explained that legitimate high-end smartphones cost above Rs 50,000 with BCD and integrated goods and services tax built into the price. On the other hand, grey market sellers purchase such handsets from overseas without paying taxes and tariffs and are able to offer them at lower prices to customers.
“The grey market menace is exceptionally acute in mobile phones above Rs 50,000. A phone priced at Rs 1lakh in India is available for Rs 75,000 internationally, implying a high arbitrage of Rs 25,000,” an executive of a smartphone company told ET.
According to the executive, smuggling is most rampant from Dubai, Hong Kong and the US, where there is zero trading tax.
Smuggling of smartphones is easy because they can be brought packed in bags without being easily spotted, another executive told ET. The association said in the letter that curbing smuggling will lead to additional GST collection of over Rs 1,000 crore annually.
“Given that domestic market for high-end phones is in single digits, the manufacturing of such phones in India is driven by the need of these companies to serve global markets, so it has no linkage with imposition of BCD,” they said.
Meanwhile, executives said that with manufacturers such as Apple and Samsung gradually shifting production to India, the industry expects most high-end phones to be made locally in the next two to three years.
“The corporate rate tax cuts are a step in the right direction and various incentives to promote electronic manufacturing are in the pipeline and all this will encourage manufacturing in India,” the first executive said. The industry said smuggling is also hurting the businesses of some 10,000 retailers in the country who stock these phones.
“These retailers are unable to sell their stock and suffer sudden shifts in demand during summer and winter holidays when large-scale smuggling occurs; this impacts their business models,” the association said in the letter.
4 Comments on this Story
Anil Kumar458 days ago
this tax rate should continue..
Praker 459 days ago
Impose 500 percent import duty on all imports
BharaT 459 days ago
don't get fooled increase it more