Budget 2017: Government has done a bare minimum for the IT sector
The intention of the government seems clear to slowly and steadily develop an entire back end eco system in India for manufacture of mobile phones. Mahesh Jaising (more) Partner, BMR & Associates LLP | Mahesh Jaising Expectations are always on a high during Budgets with every person expecting a small piece of the incentives proposed by the Finance Minister. The run-up to Budget 2017 in terms of expectation for the IT sector was no less. While the IT industry did not expect big bang changes on the indirect tax front account of the imminent migration to GST, the IT sector was definitely expecting a few proposals especially on the customs front and extension of the Governments ‘Make in India’ initiative. The government has been very committed towards this initiative and has been rigorously pursuing this initiative.
The recent initiative of differential duty benefit has given a facelift to the manufacturing sector in India, especially for domestic manufacture of mobile phones, tablet and CPE equipment and attracted world class established manufacturers globally to set up manufacturing facilities throughout the country. In addition to providing a facelift to the manufacturing sector, the initiative has resulted in generating employment, manufacturing ecosystem, capex expenditure and improving India’s forex reserves. As a next step to increase the level of value addition undertaken in India, the government has introduced special additional duty (SAD) at the rate of 2 percent on populated printed circuit boards used for manufacture of mobile phones. The intention of the government seems clear to slowly and steadily develop an entire back end eco system in India for manufacture of mobile phones. Given the success enjoyed for manufacture of mobile phones and in the backdrop of the government’s Digital India program, it was the ask of the IT industry that the success should not be limited and should be extended at least to IT products such as laptops, notebooks and desktops. These products have become necessities for day to day functioning of life in the present digital era. With the importance of these products showing an increasing trend, most of India’s demand is catered by importing these goods
However, despite advocacy efforts made by the industry, the said ask did not come through. Nonetheless, the government provided nil customs duty incentive to goods such as Micro ATMs as per standards version 1.5.1, Fingerprint reader / scanner, Iris scanner and Miniaturised POS card reader for mPOS (other than Mobile phone or Tablet Computer). Further, parts of the said goods can be imported without customs duty for manufacture in India. While the initiative is welcome, these exemption may not per se aid in boosting the domestic manufacturing industry as the import of finished goods is exempt from customs duty as well. Another relief for the industry would be repealing the Research and Development Cess Act, 1986 (32 of 1986) (‘R&D cess’) is proposed to be repealed. Levy of R&D cess, levied at 5% on payments for import of technology, was not available as credit and hence was a cost. This amendment should aid the domestic manufacturers. The government in the budget has done a bare minimum for the IT sector. With imminent implementation of Goods and Services Act in due course of time in India, the manner in which ‘Make in India’ scheme and other incentives would be grandfathered by the government should be interesting space to watch out for
