Call barred: Customs duty on cellphones may stay

NEW DELHI: Thanks to the surging subscriber base and shrinking grey market for cellular phones, the government has no plans to lower the customs duty rate on mobile handsets in the near term.
Cellular phones attract a basic customs duty of 10% and a special additional duty of 4%, taking the total duty incidence to 14.4%. The government has opted to continue with the existing rates in ’03-04, as it’s banking on garnering higher revenues from the growing subscriber base.
Industry experts say that the slashing of tariffs coupled with greater competition among players would in any case push down prices of mobile handsets.
The subscriber base for cellular phones nearly doubled from 5.7m in January ’02 to 11.2m in January ’03. Back of the envelope calculations show that this translates to an extra Rs 150-200 crore to the exchequer.
The intensifying competition in mobile telephony promises to increase the number of telecom subscribers and handsets, and therefore, revenue for the government.
The surge in demand has prompted the Department of Telecommunications to make out a case for reducing BCD on mobile handsets to zero in the ensuing fiscal in its pre-Budget wish list.
The Kelkar Committee had recommended a reduction in the incidence of duty on cellular phones by slashing BCD to zero in ’03-04 and abolishing SAD.
It had also recommended withdrawal of the exemption from countervailing duty. The BCD on cellular phones was enhanced from 5% to 10% in the ’02-03 Budget when the government decided to fully knock off the CVD on this product to curb imports through unauthorised channels.
The mobile phone handset figures, by virtue of sharing a tariff line for wireless equipment, among the list of IT-related goods on which duty has to be eliminated by ’05 as per the commitment given to the WTO under the Information Technology Agreement. Status-quo would also be maintained in the ensuing fiscal on the customs tariff on other information technology products as well.
India has, under the IT Agreement, committed to reduce tariffs to zero on 217 bound items. Duty rates have already been brought down to zero for nearly 50% of the products. A majority of the remaining items attract a customs duty of 15%. These rates are unlikely to be tinkered with in the next fiscal.
In fact, the most significant change on the customs duty front in the ensuing Budget would be a lowering of the peak customs duty rate from 30% to 25%. The 4% SAD is, however, set to be retained.