Apple Effect: Duty-free regime for smartphone kits to continuehttps://indianexpress.com/article/business/companies/apple-effect-duty-free-regime-for-smartphone-kits-to-continue-production-manufacturing-4499829/

Apple Effect: Duty-free regime for smartphone kits to continue

Apple reportedly said at the meeting that it was concerned over clarity in CVD exemption as its component-makers were unwilling to immediately set up manufacturing in India as they did not see the market here for new products.

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The committee agreed to consider continuing the CVD-free regime provided the components were used for “higher technology” products.

THANKS to Apple, India is considering continuing the duty-free regime on import of components used in mobile phones provided they are for “higher technology” smartphones with a longer lifecycle and with the least hazardous substances.

At an inter-ministerial committee meeting on January 25, there was near unanimity on continuing the existing duty exemptions on import of iPhone kits and consumables — Apple’s key demand for setting up manufacturing facility — but not to the extent of 15 years that Apple demanded, said sources.

The committee’s rationale for assuring duty relief was that since India is saturated with base model phones, it was necessary to rope in high-end mobile manufacturers to provide a fillip to Prime Minister Narendra Modi’s plan to spread digital economy which would require wider penetration of smartphones, they added.

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Components used in mobile phones are exempted from basic Customs duty but Apple wanted India’s assurance on continuing the exemption from 12.5 percent countervailing duty (CVD) — levied on imports in lieu of excise duties slapped on locally manufactured products — as three items, which were earlier exempted from CVD, were brought into its ambit last year to encourage local manufacturing.

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Apple reportedly said at the meeting that it was concerned over clarity in CVD exemption as its component-makers were unwilling to immediately set up manufacturing in India as they did not see the market here for new products.

The component-makers wanted assurance of a 15-year duty holiday which, Apple said, could eventually be shortened depending on economies of scale and domestic sourcing.

The committee agreed to consider continuing the CVD-free regime provided the components were used for “higher technology” products.

However, it asked Apple to do more due diligence to ascertain the time period for which the duty free regime would be necessary.

Moreover, since it was difficult to define and differentiate “higher technology” products, the panel asked the Ministry of Electronics and Information Technology to evolve product standards in comparison to low-end mobiles which have shorter life cycles with more hazardous ingredients.

Sources said the committee also agreed to Apple’s call for relaxation under the Export Promotion Capital Goods scheme to allow import of second-hand capital equipment and spares.

And it expressed its openness to removing the present cap of used capital imports of up to 20 percent of total investment — the import limit within which such projects qualify for capital subsidy and refund of central taxes under the modified special incentive package scheme (M-SIPS).

As for allowing its planned manufacturing facility in the Domestic Tariff Area (DTA) to import, repair and re-export of defective units without any constraint on the age of the defective units, it was left to the Ministry of Environment to consider fixing a new age limit.

The argument given was that the residual age limit needed to be increased as life for Apple products was higher. Currently, production units in DTA can only repair products exported from India up to a three-year period.

Other requests such as expeditious processing of Apple’s Advance Pricing Agreement in the Income Tax Department or aligning customs procedures for smoother clearance, declarations and tax payment were considered merely procedural issues that could be fixed, said sources.

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California-based Apple said at the meeting that it was keen to initially assemble its iPhone SE model in India, one of the world’s fastest growing smartphone markets where it still has only a tiny market share.