Budget 2016: Telecom manufacturing gets incentives, spectrum trading costly

Vivo smartphone manufacturing unit India
Finance Minister Arun Jaitley’s second Budget 2016-17 offers special incentives to Prime Minister Narendra Modi’s main projects including Make In India.

Spectrum trading deal will become costly for telecoms since the Budget 2016 proposed 14 percent tax on spectrum trading deals. Government said the right to use the radio-frequency spectrum and its subsequent transfers will be declared as a service with effect from date of enforcement of Finance Bill, 2016.

Vishal Malhotra, tax partner, telecom practice, EY

Proposals introduced in Finance Bill 2016 are a mixed bag for the telecom sector.  Proposal to amortize spectrum fee rather than allowing tax depreciation would have a negative impact on the cash flows of the telecoms besides resulting in ambiguity and litigation risk for the prior years when the operators have largely taken the position that spectrum is an intangible liable for tax depreciation.  Clarification that consideration for sharing and trading of spectrum would be liable for service tax however is a huge positive though it still needs to be seen if the states adopt a consistent position as regards levy of VAT on such transactions.

Reduction in rate of withholding tax on commission from 10 percent to 5 percent is again a welcome step though the industry would have preferred if the rate had been reduced to 2 percent which is more in line with the dynamics of distribution of pre-paid services which comprises approximately 90 percent of the revenues of the operators.

Introduction of dispute resolution and settlement provisions would again be a positive and should help reduce litigation facing this sector.  Applicability of BCD will also result in increased financial burden for the telecoms though introduction of lower excise duty regime for routers, modems and other CPE equipment may promote local manufacturing of such telecom equipment, similar to mobile phones.

Keshav Bansal, director, Intex Technologies 

With a great emphasis on the nine pillars of economy in the FY16-17 Union Budget, the Finance Minister has made a commendable effort towards creating a robust path for the future. We are happy that the budget has walked the talk for Make in India by proposing changes in the customs & excise duty structure in components and sub-components to give fillip to the creation of domestic mobile component ecosystem.

Arvind Vohra, country CEO and MD, Gionee India

The Make in India initiative by the Government has been in the highlight for a long time.  The budget 2016 clearly depicts that the government is in full support of startups and Make In India initiatives. The Finance Minister has proposed changes in the customs and excise duty rates to boost Make In India, however it is yet to be seen how it would affect the smartphone industry. In my opinion this will surely act as an impetus for the sector and will go on to make the industry more competitive. Government’s initiative towards the R&D sector to Accelerate Depreciation Limit to 150 percent from FY 2018 is also a welcome boost for the manufacturing sector.

Pradeep Jain, managing director at Karbonn Mobiles 

The withdrawal of BCD, CVD and SAD exemption on mobile phone chargers, adapter, battery, wired headsets and speakers for actual manufacturing is disheartening and is likely to stifle the growth of Indian Smartphone players and impact their price competitiveness. The parts and components ecosystem in the country is still in its nascent stage. While the incentives on local manufacturing announced in the previous budget were welcoming, government should have allowed for a gestation period for local handset players to strengthen their manufacturing capabilities before withdrawing tax exemptions on completely built units.

Dinesh Malkani, president of Cisco India

For the IT industry, the Budget has outlined proposals and schemes that add thrust to the Government’s vision of digitization in India. The budget has been one of the most technology-oriented budgets we’ve ever seen. From technology platforms and data analytics to automation, the Finance Minister has bet largely on technology to encourage the digitization of G2C platforms, digital literacy, employment generation, and Smart Cities. The Internet and education are great equalizers and the government’s push for skills development of 1 crore youth in the next 3 years is a powerful initiative to transform India into a digitally empowered society and knowledge economy.

Rajesh Agarwal, co-founder, Micromax Informatics

The government has emphasized on schemes for digital literacy for rural India to cover 6 crore households in the next three years which executed well will kick start a next revolution in the PC and smartphone adoption in the country.

FM’s concerted effort to focus on multi skill development is a laudable effort. Focusing on education and job creation through skill development, his measures to bring in quality education and commitment to empower higher educational institutions will reap benefits in the skill development of the government. Providing an impetus for startups, the 100 percent tax deductions for new startups for first 3 years will truly boost the burgeoning start up ecosystem in the country.

The proposal on reduction in excise duty  on inputs, parts and components, subparts for manufacture of charger/adapter, battery and wired headsets/speakers of mobile phone, being exempted from 12.5 percent  to nil is a welcome move and will eventually promote the manufacturing of these components domestically..

However, the exemption from basic customs duty, CV duty, SAD on charger/adapter, battery and wired headsets/speakers for mobile phone being withdrawn will increase the cost of the mobile phones till the time the companies manufacture these product domestically.

In terms of the electronic manufacturing industry we expected a lot to be announced but there was not much reference in the budget for the same. There are a lot of steps the government needs to take to bring in a next wave of growth in the electronic segment of the country. On behalf of the entire handset makers of India, we expected the government to introduce regulatory restrictions for ETA (Equipment Type Approval) and licensing requirements from DOT to import low powered wireless equipment which are very critical for success of the Digital India and Make in India vision; but there was no mention of the same in the budget. We wanted the government to also focus on having a quicker and predictable time frame to complete CRS (compulsory registration scheme) formalities to comply nation’s product safety standards. Additionally, as the electronics and mobile handset manufacturing is touted to be the next growth engine for India, there was a dire need for income tax holiday to make it viable and attractive for the industry and investors just the way it is in countries like Vietnam.

Ravinder P Singh, director – Solutions Strategy & Business Development, IoT, Smart Cities & Digitization, Dell India

Anouncement on Digital Literacy Mission Scheme in rural areas is a key stepping stone to achieve next level of human capital transformation. India is going through a massive transformation with Smart Cities, Make in India and Digital India initiatives that will have far reaching impact in the growth of urban and rural India. Technology is not only the backbone for these initiatives but also a critical stakeholder for the success and sustainability of these programs.  We welcome the government’s initiative as this will help in building digital infrastructure from the ground up that will help India grow much faster and better to enable economic growth. Dell being a global leader in ICT Technology and end user computing, we consider this as a good opportunity to work with both the government and private sector and be an active player in this journey.  We are committed to support these initiatives by providing the next generation of technology solutions and being the digital architects for such programs.

Sudhin Mathur, director, Smartphones, Lenovo Mobiles Business Group

The rationalization of custom duties and excise duties for raw materials, manufacturing for the IT and Hardware sector apart from various sectors to boost the Government’s Make In India sector are going to boost the manufacturing sector and lower costs for firms looking to do business in India.

Anand Agarwal, CEO of Sterlite Technologies

The Budget with a total outlay of Rs 2.2 lakh crore, for roads, highways and railways, shows heavy focus on infrastructure development to boost connectivity. The outlay on Digital National Rural Mission is very positive in-line with the BharatNet creation.

With the aim to achieve the targets of ‘Digital India’, two schemes enabling digital literacy for rural India, e-procurement for agricultural produce, and digital depository to store school & college certificates, come at a crucial time when the country is about to leapfrog through the deployment of BharatNet.  The Budget has missed the industry expectation for a clear roadmap for GST rollout. However, the clarity on lack of Dividend Distribution Tax on InvITs clears out the confusion on this matter and paves the way for listing of Infrastructure Investment Trusts.

Prashant Singhal, global telecommunications leader at EY

Telecom sector had high expectations from the Finance Minister, since several existing tax provisions were exerting additional burden on the industry and required urgent revamp. Proposals introduced in Finance Bill 2016 are a mixed bag for the telecom sector. While clarification introduced in taxation of spectrum fee and applicability of BCD may result in increased financial burden for the ailing telecoms, the same may reduce future litigation. Withdrawal of customs duty exemption on battery, chargers and headsets, and introduction of lower excise duty regime for routers, modems and other CPE equipment is in line with the government focus on local manufacturing and digital India.  Reduction in rate of withholding tax on commission to 5 percent is a welcome step for the telecom industry.

Debjani Ghosh, managing director for South Asia at Intel 

This budget, unlike any other, has not treated technology in isolation but integrated the effective use of technology across all the strategic imperatives in keeping with the intent of a Digital India. This budget has laid emphasis on governance reforms and ease of doing business, while highlighting the need for enhancing educational skills in order to make India a knowledge based economy.

We are disappointed with announcement of the R&D incentives reducing because we believe that it is critical for India to be one of the most innovative countries in the world and this move could be detrimental in building India as an innovation hub. I strongly urge the government to re-consider this move, as any restrictions on the R&D ecosystem are likely to decelerate innovation in the country and restrain the ambitious Make in India and Digital India vision.

ICA National President Pankaj Mohindroo

The differential duty regime available for promoting domestic mobile handset manufacturing in India has now been enhanced and extended for Mobile handset adapters / chargers, batteries and headsets / speakers of mobile handsets for supply to mobile manufacturers. The domestic manufacture will attract 2 percent excise duty while imports will face 29.441 percent duty, giving a 27.441  percent protection to domestic manufacturing vis-a-vis importers. Further, a broad category of inputs including parts, components and sub-parts has been exempted from excise as well as CVD of customs when used for manufacture.

The actual date of implementation of this duty dispensation should be postponed to 01-06-2016 in case for mobile adapters / chargers and 01-09-2016 in case of batteries and wired headsets, considering the lead time required to set up manufacturing operations for these components / accessories.

ICA said the size of components industry pertaining to mobile phone chargers, batteries and wired headsets by 2018 will be Rs 7,000 – Rs 10,000 crore.

Hari Om Rai, CMD of Lava International

The industry is unhappy on the imposition of 2 percent SAD on populated PCBs used in manufacture of mobile phones and tablet computers. As much as half of production cost of a Mobile phone consists of populated PCBs and this imposition of 2 percent SAD will mean that the duty differential between complete mobile phones and its parts / components for manufacturing will be significantly diminished. India has not yet developed the eco-system for the complexity involved in populating a mobile phone bare PCB.

Nigel Eastwood, group CEO of New Call Telecom

This budget focuses clearly on growth, development and job creation with particular focus on start-ups by giving them support via exemptions for 3 out of 5 years.  With government initiatives like National Digital Literacy Mission for Rural Households and Stand Up India Scheme in place, these will help boost the startup scenario for the SCs, STs women entrepreneurs as it will help reach out to these under-served sectors of the population by facilitating digital technologies for consumers and markets.

Govind Bansal, co-founder of Aqua Mobiles

Apart from 30-35 percent relaxation in the corporate tax and a reduction in the import of IT and Hardware products, there is nothing to boost the mobile phone industry of India. The budget is not in the line of ‘Start-up India, Stand up India. It is good for the agriculture sector, but nothing has been offered to the manufacturing and trading businesses.

Some of the announcements in the Union Budget 2016-17 has the potential to revolutionize the telecom manufacturing in the country.

BCD – Nil CVD – Nil SAD – Nil (present)

Applicable BCD CVD – 12.5% SAD – 4% (proposed)

The exemption from basic customs duty, CV duty, SAD on charger/adapter, battery and wired headsets/speakers for manufacture of mobile phone being withdrawn

Applicable BCD, CVD SAD


Inputs, parts and components, subparts for manufacture of charger / adapter, battery and wired headsets /speakers, of mobile phone, subject to actual user condition being exempted



Specified telecommunication equipment [Soft switches and Voice over Internet Protocol (VoIP) equipment namely VoIP phones, media gateways, gateway Product/Switch (POTP/POTS), Optical controllers and session border controllers, Optical Transport equipment; combination of one / more of Packet Optical Transport Network(OTN) products, and IP Radios, Carrier Ethernet Switch, Packet Transport Node (PTN) products, Multiprotocol Label Switching- Transport Profile (MPLS-TP) products, Multiple Input / Multiple Output (MIMO) and Long Term Evolution (LTE) Products on which 10% BCD was imposed in 2014-15 Budget] being excluded from the purview of the other exemption also



Exemption from SAD on populated PCBs of mobile phone/tablet computer being withdrawn. Concessional SAD on populated PCBs for manufacture of mobile phone/tablet computer imposed.


2% [without ITC] or 12.5% [with ITC]

Excise duty structure on domestically manufactured charger/adapter, battery and wired headsets/speakers for supply to mobile phone manufacturers as original equipment manufacturer being changed.

12.5% / Nil


Excise duty on inputs, parts and components, subparts for manufacture of charger/adapter, battery and wired headsets/speakers of mobile phone, subject to actual user condition being exempted.

Applicable BCD, CVD SAD


Parts and components, subparts for manufacture of Routers, broadband Modems, Set-top boxes for gaining access to internet, set top boxes for TV, digital video recorder (DVR)/network video recorder (NVR), CCTV camera/IP camera, lithium ion battery [other than those for mobile handsets] being exempted.

Baburajan K