The Union Budget 2017-18: ELCINA’s recommendations

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Union Budget , ELCINA, electronics, indiaThe Indian electronics industry awaits the budget of 2017-18 with great anticipation, as it’s not very certain as to how the recent demonetisation by the government will impact it. ELCINA has put forward certain recommendations for the upcoming budget, which could boost manufacturing in the electronics industry in the coming years

By EB Bureau

The Make in India and Digital India initiatives, combined with the National Policy for Electronics 2012 (NPE), have generated immense positive energy among stakeholders in the ESDM industry in India. The business sentiments are quite optimistic, and the industry needs to go all out and support investments in the ESDM sector to realise its huge potential.
However, in addition to a supportive tax policy, the industry needs ease of doing business that matches with the best, globally, in order to attract investments.
ELCINA’s pre-budget recommendations are directed at addressing the serious challenges holding back high value added electronics manufacturing in the country.


Rajoo Goel, secretary general, ELCINA
Rajoo Goel, secretary general, ELCINA

“If 11 per cent differential duty benefit can be given to the SKD assembly of mobile phones and tablets with less than 6 per cent value addition, why can’t at least 8-10 per cent benefit be given to the manufacture of components, PCBs, parts, raw materials and SMT assembly (PCB population by EMS companies). These entail between 15-50 per cent value addition, and create far more value and employment benefits as well as increase the potential for R&D and technology-absorption in order to establish a sustainable ESDM manufacturing ecosystem.” 


Key recommendations

  • ELCINA supports and urges implementation of GST immediately, which includes a rationalised indirect tax structure, and 12 per cent GST on the electronics value chain, especially components, parts, consumables and assemblies.
  • Exemption of 4 per cent SAD (special additional duty) was granted on all inputs/components used in the manufacture of all ITA-1 items (except populated PCBs) in the budget for 2015-16. This exemption should now be extended to all components/inputs used in the manufacture of all electronic equipment/products.
  • Implementation of key schemes of the National Policy on Electronics, such as MSIPS and EMC, must be expedited and implemented with urgency.
  • The differential excise duty structure was widened to cover specified CPEs, such as routers and set-top boxes, in the Union Budget 2016-17. It is recommended that this policy is expanded to cover all ITA-1 items and the ESDM sector value chain to promote manufacturing in a big way.
  • Presently, LCD panels are being imported by the LCD/LED TV manufacturers. ELCINA recommends that LCD panel fabs may be treated at par with semiconductor fabs and should be offered similar benefits.
  • There should be zero duty on all inputs for the manufacture of electronic components and parts, including dual-use inputs for all ITA-1 items which result in an inverted duty scenario.
  • ELCINA recommends that suitable rules may be framed to provide a level playing field to SEZ units for the manufacture of chargers/adapters, batteries and wired headsets/ speakers for mobile phone; duties should be charged from SEZ units on a duty foregone basis.
  • ELCINA recommends that in addition to continuation of SAD, 5 per cent customs duty should be imposed on fully assembled PCB boards imported for the manufacture of ITA-1 products and electronic equipment, which are currently subject to zero customs duty.
  • The sale of domestically manufactured zero duty electronic items should be treated as deemed exports, and should enjoy all the benefits that exported products enjoy.

Specific recommendations for taxes
Recommendations on central excise
Differential excise duty to incentivise manufacturing: The differential excise duty structure, as provisioned in the Union Budget 2015-16 on mobile handsets and tablets, has met with an encouraging response from the industry. Many companies have set up manufacturing facilities for mobile handsets in India, while another set of companies has taken the EMS route for domestic manufacturing. Following this success, its scope was widened to cover specified CPEs, including set-top boxes, in the Union Budget 2016-17. On differential duty regime, ELCINA recommends the following:

  • It is suggested that the scope of differential excise duty be extended to all ITA-1 products with the sole objective of encouraging the use of domestically manufactured components, parts and consumables. Wherever possible, products covered under the differential excise duty structure may be brought under a phased manufacturing programme, with increasing local value addition.
  • To promote local manufacture of components, parts and consumables, it is recommended that the differential duty benefit be allowed for equipment manufacturers by either of the following two methods:
  • Allow refund of CGST paid on domestic content/inputs used in the manufacture of the final product.
  • ELCINA believes that reducing the output duty on the finished product to the extent of domestically manufactured components used in its manufacture with automatic refund of credit overflow would be a seamless method of encouraging usage of domestic inputs and investments in local manufacturing.
  • Investment on a long-term basis needs stability, transparency and predictability in the taxation regime and so, in this context, continuation of benefits in the prevailing differential excise duty to encourage domestic manufacturing of mobile handsets in the GST regime is important.
  • A duty differential of ~6 per cent (50 per cent of excise duty or GST) for the entire ESDM value chain may be introduced. For all inputs of the electronics industry, excise duty should be pegged at 6 per cent (50 per cent of the tariff rate).
  • Concessional excise duty rates on standalone radio receivers: Presently, the excise duty on the manufacture of standalone radio sets is levied on the MRP. ELCINA recommends that excise duty for this item may be reduced to 8 per cent (which is revenue neutral) and must be chargeable on the ex-factory price.
  • Duty concessions on the inputs for the manufacture of LED lighting: The government has taken several initiatives to increase local manufacturing of LED lights. ELCINA requests the duty-free import of the items used for the manufacture of LED packages, LED modules, LED segment displays and COBs.
  • Duty concessions on imports made under the Project Import Scheme 1986: The Project Import Scheme 1986 (as amended from time to time) has facilitated the import of various capital goods and consumables at duty concessions of 2.5 per cent to 5 per cent. ELCINA recommends that in order to encourage fresh investments and projects in the ESDM industry, zero duty import of capital goods and consumables be allowed under the Project Import Scheme.
  • Duty concessions on the inputs for the manufacture of electronic control units: It is recommended that electronic components such as antennas, DC-AC converters, etc, which are not manufactured in India, may be allowed for import at zero BCD (basic customs duty) on actual user condition for the manufacture of ECUs and body computer modules.
  • Duties applicable to DTA sale from EOU/EHTP in line with FTAs: The cheaper imports from the FTA (Free Trade Agreement) countries compared to those manufactured in EOUs/EHTPs (export oriented units/electronic hardware technology parks) need correction to allow a level playing field to these units/parks, so that they can sell in the DTA (Domestic Tariff Area) and are not disadvantaged due to FTAs. ELCINA recommends that EOU/EHTP units may be allowed to sell in the DTA at the lowest basic customs duty under any FTA for the respective products.
  • Walkie-talkie is a zero duty import item whereas custom duty is applicable on the inputs for its manufacture: ELCINA recommends that due to security concerns and to encourage local manufacturing in India, this inverted duty structure for the manufacture of wireless equipment should be corrected at the earliest.
  • Zero basic customs duty on parts and raw materials for making LCD panels and modules: ELCINA recommends that most of the parts, raw materials and consumables for the manufacture of LCD panels and modules should be allowed at zero duty to support and encourage domestic manufacture of LCD panels and modules.
  • The domestic manufacturers of security equipment are facing stiff competition from imported items: ELCINA recommends that the government supports domestic manufacturing and import substitution of the security equipment mentioned earlier, and that the BCD on security equipment should be increased up to 15 per cent from the existing 10 per cent.
  • Fixation of value addition norms for flash drives, under Rule 25 of the Anti-dumping Duty Rules 1995: Anti-dumping duty is imposed on the import of flash drives from China and Taiwan. Flash drives and controllers used for the manufacture of flash/pen drives comprise almost 80-90 per cent of the cost of this product, and the other parts such as the PCB and connectors along with some plastic and metal parts, together contribute not more than 10-20 per cent of the product’s bill of materials.
    ELCINA recommends that the value addition norm for the manufacture of flash drives may be fixed at 10 per cent or at 35 per cent, excluding flash and the controller. In both cases, the COB (Chip on Board) or PCB assembly must be made in India.
  • Customs duty applicable when EHTP units import to supply goods to ISRO: Imports made by ISRO are exempted from customs duty through Cust. Notif. No. 20/2007, whereas EHTP imported inputs for the manufacture of goods which are meant to be supplied to ISRO are charged the applicable BCD. This is against the intentions of the Make in India drive, and ELCINA recommends that inputs imported by EHTP units for the manufacture of goods which are to be supplied to ISRO should be at zero duty.

Recommendations on customs duties
Duty exemption on capital goods for the manufacture of‘parts of mobile phones’: ELCINA has pointed out that though the BCD is exempted on the import of capital goods to manufacture mobile handsets, there is no similar provision for exemption of BCD on the import of capital goods for the manufacture of ‘parts of mobile handsets, i.e., chargers or adapters, batteries, wired headsets and speakers’. These may be made duty-free so that the manufacture of ‘parts of mobile phones’ gets a boost in the country.
Duty exemption of preform of silica: Companies have invested to set up facilities for manufacturing optical fibres and cables, based on the duty-free import of preform of silica, which is a basic raw material. ELCINA recommends that the exemption of BCD on preform of silica be continued (reinstated), thereby encouraging the domestic manufacture of OF (optical fibre) and cables.
Duty exemption on inputs for the manufacture of sub-miniature fuses: In the Union Budget 2016-17, duty exemption has been provided on specific parts and capital goods for the manufacture of sub-miniature fuses. ELCINA recommends that these inputs may continue to be allowed at zero duty.

Recommendations on the upcoming GST
Recommendation on GST structure for excise exempted areas: Excise duty exemptions are available to various manufacturing units, especially in the newly formed states and the backward districts of various states. ELCINA recommends that rather than refunding CGST to these units, manufacturers and other entities in the value chain should be allowed to charge CGST and retain it (without depositing it with the government).
Recommendations regarding achieving net-zero imports of all consumer appliances: To promote indigenous manufacture of consumer appliances in the new GST regime, ELCINA has the following suggestions:
The credit of CGST content charged on the import of consumer appliances should not be allowed. This will encourage the sale and manufacture of indigenously manufactured consumer appliances by making the imported items costlier.
The CGST paid on domestically manufactured inputs (raw materials, intermediate goods, etc) used in the domestic manufacture of consumer appliances, should be refunded.

Service tax exemption recommendations

  • Service tax exemption should be allowed to 100 per cent EOUs and EHTP units, in the procurement of inputs for the manufacture of export-oriented goods. This exemption is already provided to SEZ units.
  • Initially, under the default list of a total of 93 services, service tax was exempted for SEZ units. However, on November 20, 2013, the development commissioner announced a new default list of services containing only 60 services for which service tax is exempted. Thus, 33 services have been deleted from the exemption list. ELCINA recommends that these services should be added back, as it unnecessarily adds to costs for manufacturers in the SEZ and is unwarranted.
  • There should be exemption/refund of service tax on construction services for semiconductor fabs and LCD fabs.
  • Service tax charged on the following heads must be allowed to be taken credit of:
    a. On outward transportation from the place of removal.
    b. On export bills of the customs house agent and freight for warder’s bill.
    d. On fire insurance, employees’ insurance and on transportation expenses of employees.

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