Date:01/03/2005 URL: http://www.thehindubusinessline.com/2005/03/01/stories/2005030102160400.htm

Back Local PC makers fear CVD burden

Our Bureau

Bangalore/New Delhi , Feb. 28

THE IT hardware association MAIT today said that the Union Budget announcements would make import of personal computers (PCs), notebooks and servers cheaper by about five per cent, even as the Made-in-India computers would become marginally more expensive.

Mr Vinnie Mehta, MAIT Executive Director, said that the budget has addressed the problem of inverted tariff structure in the IT manufacturing industry owing to the implementation of the IT Agreement under which a list of 217 items would attract nil customs from March 1, 2005. Manufacturers of ITA products can now import input raw materials, parts, components and other dual usage items not covered in the IT Agreement, at nil customs duty. Further, the introduction of additional 4 per cent CVD will provide a level playing field to the local IT manufacturers against direct imports. However, the CVD should be applicable only on finished products and not on imported input components for PCs. Currently, with no excise duty on the finished PC, this would lead to additional CENVAT overflow and a local manufacturer will have to absorb the additional CVD on inputs," MAIT said.

Domestic manufacturers of peripherals such as printers sing a different tune, though. Since they already pay 16 per cent as excise duty, they enjoy a CENVAT credit on the outgoing product. The additional four per cent CVD helps get more CENVAT credit. Meanwhile software exporters are concerned over the proposed tax on fringe benefits, as it is likely to raise the tax burden . Expenses relating to travel, motorcar, hotel, conferences, employee benefits are categorised as fringe benefits."

"This could be a serious problem ," Nasscom President, Mr Kiran Karnik said. "We will take up the issue with Ministry of Finance. The definition needs to exclude all items of genuine business expenditure." Mr Karnik said that the association was yet to compute the extent of additional burden that would fall on software companies as a result of the decision.