Excise duty on PC parts may lead to price rise

CHENNAI: Personal computer costs will go up, but whether manufacturers will absorb that cost or pass it on to the consumer is not clear yet. The cost increase is on account of the 5% excise duty that has been imposed on major PC components. These components include microprocessors, DVD writers, CD writers, floppy disk drives and flash drives, all of which were previously exempted from excise duty.These components together account for 30-40% of the cost of a PC.
Some of the manufacturers believe competition in this market will ensure that price rise is not significant. S Rajendran, chief marketing officer of Acer India, said cost would most likely go up for manufacturers, but the extent of the cost increase would depend on how much of the excise duty increase can be offset by taxes paid previously in the manufacturing process. "Some of the components may be eligible for such offsets, and that would be clear only from the budget details, which manufacturers have not got their hands on yet," said Rajendran.
Mahesh Bhalla, general manager for Dell India's consumer and small & medium business, said the company does not see an increase in retail prices on account of this cost increase. "Competition in the PC market is intense, and it may push manufacturers to limit price increases," said Bhalla.
Other major players in the PC market believe that this excise duty will definitely lead to price increases in the market since there is already a huge pressure on bottomlines due to the intense competition in the market.
"We believe that the levy of 5% excise duty on specific IT products announced during the Union Budget 2011 is not a decision in the right direction as this will increase the cost of manufacturing in India versus importing. This added excise on specific IT products including microprocessors, floppy disks, CD drives etc, whether used independently or as an embedded device, will further increase the prices of personal computing and be a disadvantage to companies that want to increase their manufacturing base in India," said Sunil Dutt, vice-president and general manager, personal systems group, Hewlett-Packard India.
"Yes, our input cost will be affected as PC manufacturers are already suffering from a reverse duty structure. This announcement is only going to further aggravate the situation," said Amar Babu, managing director, Lenovo India. The industry in general, he said, will be left with no choice but to pass on the burden to consumers.
But experts feel that a certain segment will be affected more than others. "It will primarily affect companies having facilities in excise-free zones where this duty will appear as an additional cost now," said Pratik Jain, executive director, KPMG.