INDIA BUSINESS WORLD - JANUARY 16^th - JANUARY 31^st - 2008

TAX TO BE PAID NOT ON THE ASSESSABLE VALUE DECLARED BY THE MANUFACTURER, BUT THE MRP PRINTED ON THE PACK

Ever walked away with a huge discount on the maximum retail price (MRP) of a computer or a television, only to be told later that you still paid more than the market rates? Such pricing illusions have come to an end in the electronics hardware market, thanks to a new rule implemented by the Centre. The government has changed the way excise duty is levied from January 25. Now the tax will be paid not on the assessable value declared by the manufacturer, but the MRP printed on the pack. This is aimed at tackling excise evasion and make pricing transparent to the consumer.

"It will definitely make MRPs logical and protect customer interests," said Jayant Gundewar, chief strategy officer of WeP Peripherals Ltd, which makes printers, power supply systems and other peripherals. "All good brands do follow a strict MRP regime and hence it will not affect them. It will weed out bad practices like overpricing," he said. The new system penalises a manufacturer who sticks an MRP much higher than the actual price. It also benefits the one who sticks the price the product is supposed to sell at. The government announces that abatement rate, declaring how much of the MRP will be exempt from excise duty. This is typically to take care of costs incurred after leaving the factory and trader margins etc.

For example, assume a product is made at a cost of Rs 8,000, sold for Rs 10,000 but carries an MRP of 15,000. If it attracts a 16% levy, the duty under the earlier regime would have been Rs 1,280 and the duty under the new regime would be Rs 2,400. But then the MRP here is inflated. If the MRP is revised to the actual selling price and an abatement of, say, 25% is effected, the new levy would be calculated on Rs 7,500. In this case, the duty would be Rs 1,200, lower than before. But if the abatement is lower, this rate could be higher. In the recent policy move, the government has fixed the abatement rate at 25% for printers, ink cartridges, modems, keyboards, mouse, monitors, 24% for set-top boxes, and 22.5% for personal computers.

The Manufacturers' Association of Indian IT (MAIT), the apex body of the Indian IT hardware industry, said the abatement rate was lower than its expectation. Vinnie Mehta, executive director, MAIT, said, "We expected the abatement rate to be at least 40% but it is about half of that. The JFM (January-February-March) quarter is a peak quarter for us, with this change we will lose 10-15 days of it." Paresh Khadye, logistics manager at Taiwan-headquartered ASUS India, said consumer prices could go up under the new tax norm.