ICA urges duty rationalization

Indian Cellular Association (ICA), comprising of cellular handset manufacturers, distributors and retailers, has urged the government to reduce basic customs duty from 10 percent to five percent and abolish the special additional duty (SAD) of four percent. This is expected to help the cause of the legal sale of handsets to a large extent since consumers pay approximately 30 percent-60 percent more for a legal handset as compared to a smuggled one. 

With more than 75 percent of the cellular handsets being sold in the grey market, the government would lose revenue to the tune of Rs 5,390 crore by 2006, if appropriate steps are not taken to rationalize the duty structure, warned Pankaj Mahindroo, President of

ICA.

The Association has also urged the removal of mobile handsets from the 1/6 Income tax eligibility definition by virtue of which cell phone owners have to pay income tax. In addition, certain states like Punjab, Gujarat and Maharashtra have imposed five percent octroi, due to which the size of the grey market in these states is much bigger.

Another recommendation for the government is to disallow importing of handsets under Rs 12,000 ceiling when returning from foreign trips. The Association has suggested that handsets be stamped on the passports just as laptops are stamped when taken abroad.

Another significant point raised by the Association is that operators be exempted from paying tax when selling handsets. This is in sharp contrasts to other traders who do not have to pay tax when selling handsets. Telecom operators have to show the sale of handsets as total revenue to the government based on which the revenue sharing of the operator is determined. It is because of this reason that cellular operators do not bundle handsets with services which is a common strategy in overseas markets.

The Association appreciated that the Union Budget of 2002-03 had abolished the countervailing duty (CVD) of 16 percent on cellular handsets bringing down handset prices by as much as 20 percent. As a result of this drop in handset prices, the share of legal sales went from 10 percent to 25 percent on an all India basis. In some cities like Delhi, Chandigarh and Kolkata, legal sales are as high as 40 percent-60 percent. 

If the duty structure is rationalized, ICA estimates that the sale of legal market would receive a boost leading to the mushrooming of over 15,000 retail outlets in the country. This would in turn provide employment for over one lakh people. ICA estimates that if the recommendations are accepted, the share of legal handsets would increase from the present 25 percent to as much as 90 percent.

Cyber News Service