DoT seeks 15-year tax holiday for domestic mobile manufacturing

The Department of Telecom is believed to have sought a 15-year tax holiday on domestic production of handsets and a lower unifom VAT rate among other relaxations to rejuvenate mobile phone manufacturing in the country.

"Domestic market demand for mobile phone is expected to hit 1 lakh crore for the first time in 2015 and mobile production is on decline. In Vietnam, there is tax holiday of 30 years where a lot of manufacturing has moved. DoT has thus sought 15-year tax holiday for domestic mobile production," an official source said.

The DoT's investment cell recommendation, which comes ahead of the budget next month, is based on input from industry bodies.

As per a report of Indian Cellular Association, mobile phone exports are expected to fall to zero in 2015 from Rs 2,450 crore estimated in 2014 mainly due to suspension of handset production at Nokia's Chennai plant.

Exports of mobile phones have been declining after touching a peak of Rs 12,000 crore (Rs 120 billion) in 2012. Exports crashed by over 70 per cent to Rs 2,450 crore from 9Rs 24.50 billion)  Rs 11,850 crore (Rs 118.50 billion) in 2013.

The DoT has also suggested that Finance Ministry levy uniform value added tax of 4-5 per cent compared to 8.8-15 per cent VAT levied across country. This, if implemented, will lead to reduction of mobile phone prices.

Besides, the department has sought extension of section 35 AD of Income Tax Act on mobile phone, tablets and their accessories producers which allows 150 per cent deduction of capital investments for calculating tax.

The government has set up a joint task force with industry to rejuvenate nation's mobile phone manufacturing ecosystem with a view to achieve production of 500 million units of mobile handsets by 2019.

As per the office memorandum, the terms of reference of the task force includes promotion of large scale mobile phone manufacturing activity to achieve production of 500 million units of mobile handsets by 2019 which in value terms amounts to output of Rs 150,000 crore to 300,000 crore.

It is estimated that this large scale production can create employment opportunity for 15 lakh people.