Budget 2007: Union Budget Leaves IT Products High And Dry

Union Budget ‘07 has ushered in some interesting reactions from various industry sources, and have popped some questions worthy of a review. While most believed that Finance Minister, P. Chidambaram’s budget was good from a long term view, they also emphasized on the need to look at some short-term changes.

We spoke to Vinnie Mehta, executive director, MAIT, to clear some uncertainties pertaining to the budget speech.

According to the budget, the peak rate of import duty has been reduced from 12.5% to 10%. The products affected in this case are mostly non PC products. In simple words, there will be no customs duty on IT products.

The cess has been increased from 2% to 3%. According to Industry distributors, products affected are networking products, speakers, webcams, headsets, headphones, DVI attached Monitors, External TV Tuners, etc. Effective Import Duty will increase by 1.15% and cost by 1% for these products and 0.16% for all other IT products like Mice and Key boards.

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According to Vinnie Mehta, “This will have very marginal impact on the prices. I do not think the industry will pass it on the consumers. This will not impact the prices.”

The budget also states that CVD and SAD (at the rate of 16% and 4% respectively) will be levied based on the RSP, which implies that there might be a rise in import cost by up to 5%, from the date of notification (not announced, but expected between March and May ‘07).

On this, Mehta remarked, “We are not clear on this. There is normally an abatement, something like 30-40%, then the price will not go up. At this point I am unable to comment if the industry wants an MRP based system or not, this is as one cannot have a standardized product in IT as in case of durables, say a PC is configured based on the customers’ requirement.”

Flash Memory will be exempted, with effect from 01/3/07, from 16% CVD. In the past, USB Flash Memory was exempted but from now all Flash Memory will be exempted. Now, this is good news. SSI Exemption has also been increased from 1 Cr. to 1.5 Cr.
Therefore, for turnover up to Rs.1.5 cr, the SSI unit will not have to pay any excise duty. Mehta confirmed the same.

Mehta also confirmed the fact that service tax exemption has been increased from Rs. 4 lakh to Rs. 8 lakh. Also, the CST has been reduced from 4% to 3% with effect from 1st April ‘07. However, Mehta feels that this impacts the local production and consumption of components, and little or no IT components are made in the country, hence this has no/marginal impact.

All in all, Mehta feels that much to all our relief, IT products have been left more or less by themselves, with no/ marginal impact on their price.