Computer hardware prices to rise

Excise duty hike, removal of exemptions in certain items is negative; increased allocation for various government projects, education sector and set up of TAGUP to drive demand.

Budget Provisions

The budget proposes increase in central excise duty to 10% from 8% earlier.

The budget proposes levy of 4% excise duty on microprocessor for computers (other than motherboard), Floppy disk drive, Hard disk drive, flash drive, CD/DVD and Combo Drive meant for external use against the exemption on these items earlier.

The budget proposes to enhance the allocation to the Department of Information Technology from Rs 2802 crore in 2009-10 to Rs 3067 crore for 2010-11. The revised outlay for FY2009-10 is Rs 1972.14 crore.

The budget proposes to exempt from service tax pre-packaged I.T. software, with the license for right to its use, subject to specified conditions.

The budget proposes to allocate Rs 1900 crore towards the Unique Identification Authority of India towards operations of the authority to issue the first set of UID numbers in the coming year.

Further, the budget proposes to set up Technology Advisory Group for Unique Projects (TAGUP) which include IT projects like Tax Information Network, New Pension Scheme, National Treasury Management Agency, Expenditure Information Network, Goods and Service Tax, which are in different stages of roll out.

The budget proposes increased allocation to the Mahatma Gandhi NREGA scheme and use of smart cards for the scheme.

The budget proposes an outlay of Rs 1133 crore for computerization of Commercial Taxes in States with of which the Centre's share is Rs 800 crore, the project will lay the foundation for the launch of GST.

The budget proposes to increase the MAT limit from 15% to 18%.

The budget proposes to reduce surcharge on domestic companies to 7.5% from 10%.

Industry Expectation - Partly fulfilled

The industry is recommending continuation of excise duty/CVD rates at 8% on all products as announced in the fiscal incentive package.

Currently service tax is at 10% whereas the excise duty/CVD is at 8%. The Industry is recommending that the service tax rate be aligned with the excise duty/CVD rate.

All IT products and components imported are subject to Special Additional Duty (SAD) of 4%. The whole idea behind levying SAD was to align it with CST being charged on domestic–manufactured products. With CST being phased out, the Industry is recommending phasing out of SAD.

The Industry is recommending the rate of abatement be increased to 35% from the current 20%. IT products like notebooks, printers etc. are taxed on MRP and abatement is provided while computing duty to neutralize the effect of local taxes and channel margins.

The Industry is recommending roll out mission mode IT projects in sectors such as education, SMEs, households, e-governance, and telemedicine and for rural India.

Budget Impact

The increase in excise duty to 10% from 8% would lead to increase in product prices as the same would passed on to consumers.

Further, the removal of exemption on microprocessor for computers (other than motherboard), Floppy disk drive, Hard disk drive, flash drive, CD/DVD and Combo Drive would lead in increase in prices for these products.

The increased allocation for the various projects and segments like education and would see demand flowing from Government/Public sector.

The reduction in surcharge from 10% to 7.5% would lead to lower taxes and lower cash outgo and in-turn lead to better earnings.

The exemption from service tax of right to use with regards to pre-packaged software lead to remove the double taxation impact. Now, only VAT would be applicable.

Stocks to watch

HCL Infosystems, Bartronics, CMC

Outlook

On an overall basis the budget will have a negative impact on the sector with the increase in excise duty and removal of exemptions in certain items. However, the increased allocation for various government projects, education sector and set up of TAGUP would drive the demand for the sector. With the economy getting back on its feet, the demand would be seen for the sector.