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Higher Import Duties on Tablets to Continue: Finance Ministry

A tablet is a tablet and not a phone even if it allows for phone calls and shall face higher rate of import duty levied on computing devices, says the finance ministry.

The Central Board of Excise and Customs, the apex indirect taxes body, has clarified that tablets that have calling function would be treated as a computing device and not a phone since the main function of the product is more akin to a computer.

Computers and laptops face import duty (countervailing duty) at the rate of 12 % while mobile phones attract a concessional import duty at the rate of 6%. The duty differential offers huge arbitrage opportunities for companies to dub their tablets having calling facility as phones.

"The function as an automatic data processing machine (ADP) is the main function of the product, while other functionalities of said machines are not different from the auxiliary functions that could be seen on any computer, such as desktop or laptop computers," the CBEC said in a circular.

There is rising acceptance of these devices that cost less than top end smart phones suit people who are largely data users but occasionally need phone functions.

A host of companies including Samsung, Micromax are present in this space. Samsung Galaxy Tab is a full-fledged tablet that also allows for phone calls. Asus has also announced FonePad, a seven inch tablet that supports voice calling. The circular is aimed at clearing the air after doubts were raised about classification of tablets and plugging a possible loophole. The classification of products under this system is determined by application, implying that products performing a similar function will be grouped under one tariff head under the Harmonised System of Nomenclature.

All products under each category are assigned a tariff code and this code determines the applicability of duty and has to be filled in on all documents by importer. Tax experts say circular is in line with international practice.

"With technological advancements where a single product has multiple uses, the classification for the purpose of tax laws becomes a challenge. Typically, the test of 'predominance' is applied in all such cases to see what is the primary function of the product," said Pratik Jain, partner, KPMG.

According to the CBEC, a tablet computer is designed to be primarily operated by using its touch screen and are not intended to be a substitute for a mobile phone to make voice calls. It main technical features is designed as a substitute for laptops, it said. "The difference between a "smartphone" and a "tablet computer" is not based on whether the product has a voice calling function or not, but on the principal features that a producer has intended for the device when designing and developing it," the CBEC said.

However, the clarification is not likely to end the debate as the lines are getting blurred between the two devices.

There are five-inch devices that provide full functionalities of tablets while being only slightly larger than the regular phones. Should these be dubbed phone or tablet? All leading players are also launching a new category of devices called 'Phablets', which is phone that masquerades as a tablet, such as the Samsung Galaxy Note and Grand, Micromax A110 Canvas 2 amongst others. Phablets, crossovers between smartphones and small tablets, with a screen size of five to seven inches, has almost all feature of both category of devices.

Economic Times, New Delhi, 23-05-2013

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