Mobile handset makers have urged the government to roll back the 2.5% customs duty on some components proposed in the budget. They have argued that the tariff will hurt the plans of global value supply chains looking to shift to India and domestic device makers alike. It will also threaten investment and production targets set under the Production-linked Incentive (PLI) scheme, they said.

The India Cellular & Electronics Association (ICEA), which counts Apple, Foxconn, Lava, Wistron, Salcomp and Micromax as members, said in a letter to FM Nirmala Sitharaman that the government was reversing the incentives given through the marquee PLI scheme through the proposed levies. The development will hurt the target of producing phones worth 10.5 lakh crore in the next five years under the PLI scheme, it added.

“Unfortunately, unnecessary changes in the duty structure have been made, which need to be reversed with immediate effect,” said Pankaj Mohindroo, chairman of ICEA, in the letter dated February 4. According to the industry, the decision to levy the additional duty will negatively impact the industry of mechanics, which covers products like battery cover, front cover, SIM socket and back covers, among others.

Till now, there was nil customs duty on the inputs for these mechanical products, while the GST was 18%. However, now inputs are being proposed to charged duties of between 2.5% and 15%, and 18% GST, it said.

The imposition of duty has been sudden and is contrary to the finance secretary’s post-budget statement that the government was not tinkering with tax rates to provide a stable policy environment to investors, the association said.

ICEA also said the duty was also contrary to the proposals of the nodal ministry – Ministry of Electronics and IT (MeitY) – and industry.

“Global value chains do not appreciate frequent tinkering with duties, structures etc and therefore post October 2020, some stability was necessary – consistent with the position expressed by the revenue secretary,” the letter said.

Handset makers want proposed duty on components rolled back
Contract makers of Apple’s iPhone, Wistron and Foxconn, and Samsung, which together constitute 80% of the global value supply chain in the smartphones segment, are the biggest applicants of the PLI scheme. The industry said the era of levying a duty on imports to give a fillip to domestic production was over and going forward, the PLI scheme was the best way to encourage domestic manufacturing.

Between 2015-2018, the government had implemented a phased manufacturing plan (PMP) under which custom duties were levied on certain electronics products to encourage domestic production.

“The Budget describes promoting domestic manufacturing and exports via global value chains as the reasons for this unplanned spike in duties. Sadly, neither of the two objectives will be met. These products are neither made by Indian companies, nor will be for the next 3-5 years. We have shot ourselves in the foot – ended up increasing costs and diminishing competitiveness,” Mohindroo said in the letter.

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