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February 3, 1998


Embedded software may attract duty

Email this story to a friend. Software embedded in electronic components and equipment may no longer be entitled to the zero-duty concession granted for software imports.

To prevent misuse of the concession, the finance ministry is likely to treat embedded software as hardware for the purpose of duty evaluation.

Currently, software imports are duty-free and the duties on imported components range from 20 to 30 per cent.

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The duty payable is, however, even higher for non- project imports. The finance ministry's move is targeted at importers of telecom components and equipment who are alleged to have misused the concession by claiming a higher proportion of software components in their imports.

Items such as imported computer terminals, digital video disc players, wireless communication devices, set-top boxes, Internet web phones, hand-held PCs and cellular phones too come under the category of equipment with, embedded software.

However, the proportionate value of software components is significantly lower in these items.

In the case of telecom imports, the problem has been compounded by the fact that the percentage of software components in imported telecom equipment/components varies sharply between manufacturers.

The customs department, which stands to lose revenue due to the alleged misuse, sought the opinion of the Department of Electronics to resolve the issue. The latter has proposed knocking off the duty concession in the case of embedded software.

Officials, however, clarify that telecom software imported, as a discrete unit (in diskettes or cartridges) will not attract any duty. Telecom equipment manufacturers, however, claim that the move will have a cascading effect on end-product prices of telecom equipment.

For instance, in the case of switches, software constitutes as much as 30 per cent of the total value of the equipment. The finance ministry's move would translate into a higher overall duty pay-out by importers.

With importers jacking up prices to offset the extra duty pay-out, bulk buyers such as the Department of Telecommunications and the Indian Railways may stand to lose considerably, said sources.

Much of the telecom equipment used in India is imported. Cellular mobile switches are wholly imported and key components of basic telephone switches, primarily integrated circuits are also sourced abroad.

In some instances, ICs constitute as much as 20 per cent of the total value of the whole equipment.

The move will nevertheless shore up sagging customs duty collections, which have registered a negative growth during the first 10 months of the current year.

During the current fiscal, revenue collections from customs are targeted to touch Rs 525.5 billion as against Rs 441.35 billion in the revised estimates for 1996-97.

Earlier: Hackers crack customs system

- Compiled from the Indian media

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