Excessive duty on high-end phones causing annual loss of Rs 24 billion to government

As per the mobile handset industry, imposition of 20 per cent basic customs duty (BCD) on high-end phones priced at Rs 50,000 and above is causing a loss of Rs 24 billion to the government on an annual basis.

The industry, in a representation to the Finance Minister, Commerce and Industry Minister, and Electronics and IT Minister, has stressed on the immediate need to rationalise duties down to Rs 4,000 per phone beyond a landed price of Rs 20,000 for imported phones.

Additionally, India Cellular and Electronics Association (ICEA) in a letter to the government has argued that a change in the rates would wipe out the losses to the exchequer and result in an additional earning of Rs 10 billion on account of goods and services tax (GST) collection.

In the letter, ICEA further highlighted that mobile phones imports constituted 78 per cent of India’s total market requirement till the year 2014-15.     However, in 2018-19, it fell to between 5-6 per cent and is expected to fall further to 4-5 per cent in 2019-20. This has resulted from the rapid indigenisation programme and lead to a significant dip in the GST collections.

Additionally, ICEA has also argued against the “one-size-fits-all” 20 per cent customs duty regime.

As per the industry, imposition of high customs duty on imported handsets leads to large-scale smuggling since the arbitrage ranges between Rs 25,000-30,000 per phone. The smuggling occurs mostly from Dubai, Singapore, Hong Kong and the US which have zero tax trading or a total duty of maximum 9 per cent, as against India’s 32 per cent – 20 per cent BCD and 12 per cent GST. ICEA has also pointed out that the loss of sales due to grey market amounts to approximately Rs 80 billion which adversely impacts nearly 10,000 retailers who sell high-end phones.

According to ICEA, the loss of customs duties and GST was nearly Rs 14 billion and Rs 10 billion, respectively. However, ICEA has not sought any reduction in duties for phones whose landed price is below Rs 20,000, as they constitute around 95 per cent of the total volumes.