Finance ministry looks to curb smuggling of top-end mobile phones

FinMin considers proposal to reduce basic Customs duty on phones with a cost, insurance and freight value of over Rs 35,000

The Finance Ministry is looking at a reworked proposal from mobile device makers on how to fight the rampant and growing smuggling of very high end phones.

The proposal suggests reducing the basic customs duty (BCD) on phones which have a CIF (cost, insurance and freight or price at landing in the port) value of over Rs 35,000-Rs 40,000.

The retail value of these phones is upwards of Rs 70,000. They constitute less than 5 per cent of the country’s smartphone sales.

An earlier proposal by the Indian Cellular and Electronics Association (ICEA) last December which suggested a cap of Rs 25,000-Rs 30,000 did not go down well with the Finance Ministry.

It raised concerns that the cap would impact the domestic production of some of these phones which are being manufactured in India with a factory price of Rs 40,000.

Mobile device makers had been asked for recommendations that would protect domestic manufacturing, remain revenue neutral, and limit smuggling.  

The first proposal suggested a BCD flat rate of Rs 5,000-Rs 6,000. The latest says that this could go up to Rs 8,000 or more for a phone.

According to estimates by the ICEA, this year, the smuggling of very premium phones is expected to hit over Rs 10,000 crore, out of which Rs 8,000 crore accounts for the most expensive.

Smuggling has been growing year on year due to the huge arbitrage created as a result of the 45 per cent tax levied on imported phones (22 per cent BCD and 18 per cent GST).

In simple terms, the price difference of the same phones in India as compared to Dubai or the US can vary between Rs 40,000-Rs 50,000.  

For example, the iPhone 14 Pro of 128 GB is cheaper in Dubai by Rs 34,204 and in the US by Rs 44,138. The even more expensive iPhone 14 Pro Max with 1 TB is cheaper by Rs 52,630 in the US and by Rs 38,554 in Dubai.   

A change in the tax structure has been under discussion. If implemented, it would help companies like Apple, Samsung and Google, which import very high end phone models which are not manufactured in India, such as the iPhone 14 Pro and Promax  or Google’s Pixel 7 Pro.

The domestically produced smartphone industry is already vibrant, accounting for around 95 per cent of the value and 99 per cent in volume terms of the total smartphones sold in India.

Mobile device players say that even if the BCD flat rate is upped to a flat Rs 8,000 per phone, and smuggling reduced by  25 per cent, the government will remain revenue neutral. 

While it’s true that the government could lose revenue from a lower BCD, it will more than make up for any loss from the legal importation of these phones with duty and GST.  

Reining in

• Proposal would help companies like Apple, Samsung and Google, which import very high-end phone models
• Mobile device makers had been asked for recommendations that would protect domestic manufacturing, remain revenue neutral, and limit smuggling
• A 25 per cent reduction in smuggling will ensure revenue neutrality for the government, say mobile device makers   
• The market for very high-end phones accounts for less than 5 per cent of overall sales
• The taxes lead to the price difference of the same phones in India as compared to the UAE or the US to vary Rs 40,000 - Rs 50,000
• Smuggling of premium phones is expected to hit over Rs 10,000 crore this year