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Computers may get tax breaks in Budget

Bipin Chandran & Subhomoy Bhattacharjee in New Delhi | December 26, 2003 07:56 IST

In a move to induce competition and bring down personal computer prices, Finance Minister Jaswant Singh is likely to give a major thrust to the computer hardware sector in the Budget for 2004-05.

While the Customs duty on finished equipment may be reduced to 20 per cent from the peak rate of 35 per cent now, the Budget is also set to reduce the excise duty on personal computers.

At the same time, the government will ask the state governments to reduce octroi and sales tax to bring down the overall tax component in personal computers. Taxes and various other duties constitute about 40 per cent of the price of a personal computer.

According to senior government officials, the government will consider the key recommendations of the proposed National Computer Hardware Policy, drafted under instruction by the Prime Minister's Office, while framing the Budget.

To encourage domestic hardware manufacturing, the Customs duty on capital goods, raw materials and inputs required to manufacture electronic components may also be abolished.

The draft policy had suggested that the sales tax and the proposed value-added tax on all electronic and infotech products, including components, should be set at 4 per cent, while phasing out the special additional duty on imports under the new regime.

In order to encourage global manufacturers to relocate their manufacturing units to India, the Budget is likely to dole out special incentives to computer hardware manufacturing companies.

The draft hardware policy had suggested one-time and short-window incentives to companies setting up large operations in India and procuring substantial inputs from local firms.

Another proposal that is likely to be considered is special incentives to private hardware parks, including a duty-free facility and income tax benefits.

The hardware policy also suggested that the government should work out an export plan identifying potential markets and competitors.

The roadmap

  • Cut Customs duty to 20 per cent from the peak rate of 35 per cent.
  • Bring down the overall tax incidence on PCs from the current 40 per cent.
  • Reduce Customs duty on capital goods and raw materials to zero.
  • Push states to cut sales tax to 4 per cent.

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