PC, laptop prices may soar on duty

While the Budget is largely being perceived as a "non-event" for the IT hardware sector, the proposal to levy excise duty on the minimum retail price of desktops, laptops and peripherals, including monitors, liquid crystal displays, printers and scanners, may raise the overall prices of these goods by around 2-3 per cent.

The government, however, is yet to announce the date from which this will be effective (expected from April 1). Besides, the abatement percentage has not been declared. Currently, excise duty is levied on the factory price.

Assuming the price of a computer is Rs 30,000 (MRP). Its factory price, though, will be around Rs 20,000. The Rs 10,000 margin includes octroi, value-added tax and margin on distribution. Earlier, 8 per cent would be levied on Rs 20,000 (i.e. Rs 1,600). The figure, if the proposal is implemented, will touch Rs 2,400. In the case of LCDs, monitors, etc., the figure could be higher since the levy is 16 per cent. Shailesh P Sheth, advocate, expects the abatement percentage to be around 35-40 per cent of the MRP.

"This is a very smart move on the part of the finance minister - to get more revenue without increasing the rates (levy)," notes Umang Mehta, a Trade Association for Information Technology (TAIT) spokesperson. The Indian personal computer market has crossed the 5 million shipments mark, recording a 25 per cent year-on-year growth, according to IDC. Will an increase in rates be a dampener? Raj Saraj, CMD, Zenith, says: "I can't comment on that since I do not know what will be the basis for the MRP. Unlike consumer goods, desktops and laptops, we have no fixed configuration for these items. It's a grey area."

Another thorn in the side of the hardware sector is that computer hardware engineering services will also be subject to service tax. "Earlier it was exempted under the head of consulting engineering services," explains Sheth.

A few positives in the budget include the clarification that DVD drivers and DVD writers fall under the "Flash memory" category and hence are exempt from excise duty. The average price ranges around Rs 1,600-2,500.

The government has also proposed to raise the excise exemption limit for small scale industry from Rs 1 crore to Rs1.5 crore.

"This will benefit the over 50,000 assemblers in India," says Mehta. IDC states that assembled PCs witnessed a growth of over 27 per cent in absolute unit sales in 2006-07 – accounting for 40 per cent of total PC sales. Will assembled PCs score over branded units following this proposal? Saraf is not worried.