Tariff difference drives competition higher

By siliconindia   |   Friday, 27 July 2007, 07:00 Hrs
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New Delhi: The ever-competitive computer manufacturing industry is pitched precariously on a duty fulcrum. On one hand are HP, HCL (with units in Uttranchal) and Lenovo, which announced its plant in Himachal Pradesh while on other is Dell, which moved into an SEZ to manufacture computers for the domestic market. This decision to move into the Chennai SEZ may prove costly for the computer major as it will be paying at least 4 percent higher duty than its peers.

A domestic buyer from an SEZ in India has to pay a 12 percent countervailing duty (CVD) over items like computers. With Dell he will have to pay an additional 4 percent state VAT that makes the total duty levied on Dell product to about 16 percent. On the other hand, in the hill states of Uttaranchal or Himachal Pradesh, zero excise duty is levied. Instead, the aggregate duties on input items come to about 8 percent. With a 4 percent VAT and an estimated 1 percent logistics cost, the total levy on PC makers like HCL, Lenovo, HP climbs to 13 percent.

Excluding logistics cost the advantage becomes 4 percent and it may become higher if the government increases excise duty further. Hill states have a 10-year excise exemption, reported The Economic Times.

Concerned over the decision, Michael Dell, CEO, Dell, said," Through a more rationalized tariff regime, India can become part of the global supply chain of IT hardware. India's IT hardware manufacturing sector can also be globally recognized as its software and ITES industries."

While increasing the duty rates in domestic tariff areas (DTAs) and SEZs will benefit government coffers and other PC makers located in hill states, it will affect Dell's prospects.

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