ICA’s recommendations on GST roll out for Mobile Handset Industry

NEW DELHI: India has witnessed a robust growth in establishment of manufacturing capacities related to mobile handsets and components related to mobile handset like adapters / chargers, batteries, wired headsets etc. during the past 10-12 months.

There was an approximate 200% growth in mobile handset manufacturing activity in India in value terms during 2015-16 over 2014-15. Over 35 new mobile handset manufacturing plants have so far been established generating employment for approx. 50,000 people directly and over 90,000 indirectly.

The Prime Minister during his Independence Day speech from the Red Fort has highlighted this glorious achievement of the mobile handset industry and mentioned that 50 new manufacturing units have been established in India during the past year.

“As establishment and subsequent enhancement of the differential duty dispensation in 2015, which made imports of mobile handsets more expensive compared to domestically manufacture them, has led the pendulum swung in favour of India in terms of establishment of many new manufacturing units during the past one year, it is extremely important that the momentum is sustained in the GST regime as well and the differential duty dispensation must be retained and continued with without any disruption for a long period of time, which will help transform India as the Global manufacturing HUB for mobile handsets and components,” said Pankaj Mohindroo, Chairman - Task Force and National President, Indian Cellular Association (ICA).

Mohindroo further added, “with the Government of India’s current focus towards establishing a robust components’ manufacturing eco-system by 2019-20 in sync with the Make in India vision and Terms of Reference (ToR) of the Fast Track Task Force (FTTF), it would be extremely prudent both on part of the Central as well as state Governments to provision relevant duty dispensations to aid and allow the growth of the components manufacturing eco-system.”

“There are already early signs reg. the scope for development of components manufacturing in India as several manufacturing units related to mobile adapters / chargers, batteries and wired headsets have been established during the past 4-5 months after a similar differential duty dispensation as applicable on mobile handsets was implemented on these components in 2016. With the GOI is very keen to establish a robust components manufacturing eco-system based on institution of an differential duty based elaborate program which is currently under formulation, the GST roll out for this sector must be considered and finalized with utmost careful thought and with a visionary approach”, added Mohindroo.

The Fast Track Task Force (FTTF) set up by the DeitY under the Chairmanship of Mohindroo,and Co-chairmanship of Hari Om Rai, CMD - Lava International and Josh Foulger, Country Head and MD, Foxconn India to “re-establish and catalyze significant growth in Mobile Handset and Component manufacturing eco-system in India by 2019-20” has set up the following targets -

To achieve production of 500 mn mobile handsets i.e. annual manufacturing output of Rs 1, 50, 000 crores to 3, 00, 000 crores (i.e. 20 – 25% of total global manufacturing).

To generate additional employment of 15 lakh people

To increase export to 120 mn units

To establish a sizable component industry with a turnover of over Rs 50, 000 crore.

Key Issues:

· Existing CVD/ ED differential duty dispensation of 12.5% Vs 1% to promote domestic manufacturing needs to be maintained in the proposed GST.

· The industry is apprehensive about further investments till duty differential principle is settled – to realize the ‘Make in India’ vision.

· Reasonable SGST rate at merit rate is a must to promote Digital India and to prevent the grey market from rearing its ugly head again. Merit rate SGST coupled with domestic CGST of 1% (without goods tax credit) on domestic supply will ensure a miniscule grey market.

Recommendations:

(i) State GST on our entire ecosystem i.e. CBU mobile phones and tablets - imported, CBU mobile phones and tablets- manufactured, Inputs, parts, components and accessories imported and manufactured and Capital goods – all at 5% merit rate.

(ii) Import CGST on mobile phones CBU at Current CVD rate of 12.5% and subsequently 1% CGST at each stage without input tax credit. (IGST will be equal to 1% plus 5%. The buyer will be able to take credit of the SGST component of 5%. The 1% CGST component will not be admissible for credit). If this is found to be administratively difficult, then CGST should be fixed at 0%. In that case IGST will be 0% + 5%.

(iii) Domestically manufactured mobile phones and tablets: CGST continues at 1% (without input tax credit), but now applicable at every stage in the value chain. Again, if this is found to be administratively difficult to implement, then 0% CGST should be considered.

(iv) Import CGST on inputs, parts, components and accessories (as explained in (c) above i.e. a different dispensation for non ITA-I and ITA-I. Non ITA-I will suffer appropriate BCD and ITA-I will work on the differential duty principle. (IGST will be equal to 1% plus 5%. The buyer will be able to take credit of the SGST component of 5%. The 1% CGST component will not be admissible for credit). If this is found to be administratively difficult, then CGST should be fixed at 0%. In that case IGST will be 0% + 5%.

(v) CGST on domestic manufactured inputs, parts, components and accessories which is currently 2% (without input tax credit) should be modified to 1% since 2% will have a much greater cascading effect. (Hopefully no cascading effect needs to be studied in further detail). For supply to OEM, there will be no issue; but when sold in the market, the 2% will have a cascading effect. Therefore, we may need to look at a change of this 2% to 1%.

(vi) The present system of allowing CENVAT credit of service tax while paying the 1% excise duty without input tax credit may be continued.