Tariff Policy

  • Reduction of customs duty to zero% on all the raw materials and inputs required in the manufacture of electronic components.
  • Reduction of customs duty to zero% on all capital goods for IT and Electronics sectors.
  • The key reason for the small market size in India, are the high prices in India compared to international counterparts. The single largest factor is the higher indirect taxation level ( and its cascading effect) which in certain cases goes up to 40% of the consumer price compared to 5-17% in other countries.
  • Presently the CENVAT (excise) on most of the Electronics/IT products is 16%. In addition, Sales Tax ranging between 4-15% is levied in various States. CST, Octroi, entry tax, etc. are additional. While a single (composite) VAT levy at 17% or lower is desirable, in the short term, excise duty be levied on domestically manufactured products (in DTA, EHTP and Hardware Manufacturing Cluster Parks) at 50% of the specified excise duty rates. The full/specific excise duty rates be used for levy of CVD on imported products to compensate for disability factors inherent to Indian operations.
  • Combined with reduction in CST to 2% in the Union Budget 2003-04, this initiative alone would result in a demand increase by 40%.
  • Rationalization of Sales Tax/proposed VAT on all Electronic and IT products (including components) to 4%.
  • Customs duty on finished equipment not to exceed 20%.
  • Income from Export of electronics/IT hardware to be exempted from Income Tax for 10 years from the date of start of commercial production.
  • Promotion of Hardware Parks to be encouraged in the Private sector and given the duty free facility as well as income tax benefit under section 80IA as provided to promoters of SEZ.
  • For setting up of a Megafab in India, promoters to be given cash subsidy and other tax incentives as a special consideration.
  • Phase out of SAD being levied on imports in line with CST.
  • Total taxation level not to exceed 17% on all electronics/IT hardware products.
  • Starting with assessment year 2004-05, 50% income tax exemption on profits earned from Electronics/IT Hardware Manufacturing activity. This provision would be applicable to both existing and new units.

Issues related to Exim Policy
There is a need to unify investments for manufacturing for domestic and export markets. The electronics/IT hardware industry will be operating under a zero duty regime from the year 2005 onwards. This will obliterate the distinction between the domestic tariff area and exports. Since this will result in domestic manufacturer facing the challenge from zero duty imports, it has become imperative that duty structure is such that it does not put the domestic manufacture at a price disadvantage.

Following steps would be taken to encourage the domestic manufacturing


(i) Changes suggested in the EHTP Scheme:
In order that the Electronics/IT Hardware manufacturers are in a position to take advantage of the provision made in the EXIM Policy, 2002-07 with immediate effect and attract investments in this Sector, following modification in the scheme are proposed: Para 6.9 Other Supplies in DTA: As per para 6.9(h) of the EXIM Policy, the following supplies in DTA shall be counted towards fulfillment of NFEP/EP: “Supplies of all Information Technology Agreement (ITA-1) items and notified zero duty telecom/electronics items” This needs to be reworded as under:
“Supplies all of Electronics and IT Hardware items, provided that the items are manufactured in the unit” This modification in the EXIM Policy 2002-07 would not only make the indigenous hardware Industry face the challenges of zero duty regime under ITA-1 to a large extent but would help in encouraging and unifying hardware manufacturing in the country.

(ii) Duty on Domestic Sales
 The EHTP/Hardware Manufacturing Cluster Parks (HMCP) should be allowed to sell in the domestic tariff area (DTA) without any restriction, on payment both of duties waived on inputs as well as all domestic taxes (excise, sales tax or composite VAT) on the output. For the purpose of levy of domestic taxes, manufacturers in EHTP/HMCP are to be considered at par with DTA units. However, in case of items on which the inputs attract higher customs duty than the finished item (a scenario arising out of implementation of ITA – I), the import duty charged on DTA sales should be on the inputs/outputs whichever is lower.

(iii) Self Declaration
All clearances will be on the basis of legally enforceable undertaking (LUT) and based on self-declaration without insisting upon any a priori permits or inspections; that their actions are in conformity with the provisions of the applicable policies of the EHTP/HMC Parks Schemes; and the declaration that the goods are used for manufacture of Electronics/IT items, and will be subject to a post audit with strict and heavy punitive measures and fines for proven intentional false declaration. The physical inspection of goods, whether for import or export, into or out of EHTP/HMC Parks will not be required.

(iv) Products manufactured in EHTP/HMCP and other export oriented schemes

Products manufactured in EHTP/HMCP and other export oriented schemes should be considered at par with DTA in as much as levies of duties/taxes on domestic sales are concerned.