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Research by Country/Region January 22, 2018  
Summary of the Tariff and Tax Videoconference with the Government of India

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On January 30, 2004, senior officials from the Government of India along with U.S. Department of Commerce staff and IT industry representatives participated in a videoconference to discuss tariffs and taxes on high technology imports to India from the United States. The videoconference is a direct result of the work of the U.S. – India High Technology Cooperation Group (HTCG). Over the last year, tThe HTCG has had a series of successful meetings that have created a venue for both the U.S. Government and the Government of India to improve the facilitation of high technology trade.

The videoconference provided U.S. industry with an opportunity to directly ask questions of senior GOI officials regarding tariffs and taxes. In preparation for the event, a series of questions from the U.S. IT industry were submitted to the GOI. During the videoconference, the GOI officials addressed these questions and others raised by several of the U.S. IT industry attendees. The GOI panelists also explained the tariff and tax cuts announced by their government in January 2004 and announced changes to the GOI Export-Import Policy. Information on the tariff and tax cuts announced in January can be accessed at http://www.cbec.gov.in/cae/notfns-js(tru)-2k4.htm located on the Central Board of Excise and Custom’s (CBEC) website (www.cbec.gov.in). Information on the GOI Export-Import Policy can be accessed at http://dgft.delhi.nic.in/.

The videoconference proved to be beneficial to all of the participants. The following is a summary of the information that was shared during the videoconference.

Question 1: After the implementation of the Information Technology Agreement (ITA) is complete, are increases in the taxes levied on imported IT products, including software, being planned? Will the same taxes be levied on domestic IT products?

Response: Domestic duties are independent of India’s ITA schedule for duty rate reductions. For example, cellular phone duties are now 5% and there are no central excise taxes on these products at the federal level. There are state-level taxes that range from 0% to 12%. The GOI is working to harmonize these state-level taxes. There is no estimated time for this harmonization to occur.

Question 2: Under India’s schedule for the ITA, HS code 8525.20 (Transmission apparatus incorporating reception apparatus) is scheduled to increase from a tariff rate of 15% in 2003 to 20% in 2004, before decreasing to 0% in 2005. Most HS codes in India’s ITA schedule exhibit a year-to-year decrease; could you explain the increase in the tariff rate for HS code 8525.20?

Response: The correct duty rate is 15% for 2004 and the rate will decrease to 0% in 2005 per India’s ITA schedule. Additionally, duties for cellular phones have been reduced from 10% to 5%.

Question 3: Can you demonstrate the tariff and tax (national) calculations for two specific products (HS Code 8527.90.4000, “Other apparatus: Articles designed for connection to telegraphic or telephonic apparatus or instruments or to telegraphic or telephonic networks.” and HS Code 8471.49.10.35 “Digital processing units exported with the rest of a system whether or not containing in the same housing 1 or 2 of the following, storage, input, output, color cathode ray tube”) for the U.S. companies attending the videoconference? (The two HS Codes are from the list of the top 10 IT products imported to India from the United States.)
    a. Is there an official Government of India website or other publicly-available official GOI source which explains how all taxes that an imported products is subject to, some examples are tariffs, other border taxes, internal taxes that apply to all goods.
    b. Please demonstrate the process to determine if a specific HS code is exempt or receives reduced tariff or tax rates through the “special exemption by notification” process.
    c. Where can U.S. companies find the most up to date and accurate information on tariff and tax rates for IT products being imported into India?

Response:

Example of tariff calculation, for clarity a hypothetical value of $100 of imported goods with a tariff rate of 50% is used.
  • $100 x 10% = $10
  • $100 + $10 = $110
  • Determine the applicable rate for the excise tax (the Additional Duty). This is the only national tax in use; as of January 9, 2003 the Special Additional Duty (SAD) of 4% has been discontinued.
  • If the Additional Duty is 16%
  • $110 x 16% = $17.60
  • $110 + 17.60 = $127.60 or a total tariff and excise tax bill of $27.60

The official Government of India (GOI) website for the Central Board of Excise and Customs (CBEC) is www.cbec.gov.in. This website is a central location for information on the tariff rates, excise duties, and Notifications for reductions in tariff rates or excise duties. There is a search function at the bottom of the main CBEC web page that can be used to search for applicable Notifications by the HS code.

Question 4: Are there any beneficial tariff or tax treatments for U.S. companies importing telecommunications goods into India, specifically for HS codes 8517.80 (headset adapters), 8518.30 (wired headsets), and 8525.20 (Bluetooth headsets)?

Response: The “Most Favored Nation” (MFN) rate must be applied to all goods entering India, unless the good is covered by a bilateral free trade agreement (FTA). There are no trade agreements with the United States that are applicable to the HS codes, so the MFN rate is applied.

Question 5: Are there any special subsidies or incentives for Indian consumers in the mobile telecommunications market compared to the fixed-wire telecommunications market?

Response: There are no subsidies for Indian consumers in the mobile telecommunications market. However, there are certain exemptions available for importing certain mobile telecommunications goods such as cellular phones and certain equipment.

NOTE: More information on these incentives can be found within the Notifications on the CBEC website (www.cbec.gov.in)

Question 6: Are there customs duties for gaming software (e.g. videogame software)?

Response: Yes, any software that is interactive with the user (e.g. music, videos, or games) is subject to customs duties.

Question 7: Are there any free trade zones or programs available to U.S. companies that wish to export or otherwise do business in the IT and telecommunications sectors in India such as duty exemptions or special exemptions?

Response: There are no free trade zones or programs available to U.S. companies wishing to do business in the IT or telecommunications sectors that offer duty exemptions or special exemptions.

At present there are eight “Special Economic Zones” (SEZs) located throughout India with plans for the creation of 22 more SEZs. Any goods that are brought into an SEZ are totally exempt from tariff and excise duties. SEZs are used for the re-export of goods from India to other countries. If goods in an SEZ are sold in the Indian domestic market, the goods will be subject to all applicable tariffs and excise duties.

Question 8: Are there currently any geographic zones or states in India that have reduced internal taxes for imported high technology goods?

Response: There are no geographic areas or states in India that have reduced customs tariff rates. Certain geographic areas in India that are targeted for development are exempt from the central excise duty such as parts of North East India, Uttaranchal, and Kutch (Gujarat). The exemption facility is available only to the goods manufactured in these areas. Also, IT hardware is exempt from duty within Hardware Technology Parks and Software Technology Parks.

Question 9: Are Software Technology Parks and Special Economic Zones (SEZs) considered to be equal entities?

Response: No, they are different. There is an explanation of SEZs on the Internet at http://sezindia.nic.in/.

Question 10: We are very pleased with the announced reductions in Notification 5/2004, which lowers the maximum basic tariff rate for a number of goods including IT products. Will these reductions be permanently incorporated in to the tax tables?

Response: So far as items covered under the ITA agreement are concerned, the reductions shall be as per the agreement.

Question 11: When do you anticipate the national Value Added Tax (VAT) being implemented, and after implementation will the VAT replace state and municipal taxes, such as OCTROI (a municipal-level “entry tax” for infrastructure use)?

Response: The Government of India is working to harmonize local sales tax to four bands (0%, 1%, 4%, and 12.5%). No specific deadline for implementation of VAT has yet been decided upon. VAT is slated to replace state level sales tax and other state level taxes such as luxury tax, entry tax (not in lieu of OCTROI), surcharge, etc. However, a final decision on all these issues would only be taken when VAT is actually implemented.

For further information please contact:

Eric Holloway
Office of Information Technologies and Electronic Commerce
U.S. Department of Commerce
Tel: 202-482-4936
Fax: 202-482-0952
eric_holloway@ita.doc.gov

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