Samsung is being investigated in India for import taxes paid on components for its OLED televisions, while the firm is being questioned if it had paid lower taxes due to less developed OLED display technology. The investigation also has implications for two Indian companies – LG Electronics and is centered on the classification of imported display components for customs clearance, which could impact the cost structure of their top-of-the-range television sets.
The problem are open cell display panels which are a vital part in the manufacturing of today’s televisions. Organic light emitting diode (OLED) technology is commonly used in high-end televisions because it’s capable of producing deep blacks, high contrast and high level of detail without the need for the same backlight that is found in a conventional LCD television. India’s high-end television market is growing and Samsung and LG have both seen a boost in sales.
People familiar with the confidential investigation are doubtful why Samsung and LG applied a concessional import duty on some OLED open cell panels. The lesser rate is usually linked to the manufacturing of LCD and LED televisions, which dominate the overwhelming Indian mass market for TVs.
The Directorate of Revenue Intelligence, which is responsible for customs and revenue violations, is believed to have come to the conclusion that the OLED components should be subject to a 15 per cent import duty instead. Depending on how much and how valuable the components are that the companies import, the difference in rates may have important financial consequences.
The investigation raises a technical issue with implications for a wider issue for television manufacturers. Under India’s customs classification system, the classification of the display technology can have an important impact on the final price of the imported parts and, ultimately, the profitability of television manufacturing in the country. When businesses are targeting the higher end of the market, even marginal price differences for products bought and sold in quantity can mean a big deal.
But Samsung and LG have defied the interpretation being adopted by Indian authorities, sources close to the situation have said. They are believed to have taken the stance that for tariff purposes OLED is to be considered as being part of higher levels of LED display technology. If this is the case, the businesses may proceed to say that the lower rate is still suitable for the goods involved.
The row over the film occurs as India’s television industry is taking significant importance for the electronics industry of the world. The nation has welcomed large capital outlays for local manufacturing and foreign companies are trying to stake a claim to a market that reaches from consumers who are very sensitive to price to a more premium market.
The OLED television market is still relatively small due to the expense of the televisions when compared to regular LCD televisions. The original report estimates that approximately 6.5 million OLED televisions were sold worldwide last year. The market for OLED products in India was nearly 4% share of the television market, which had a value of approximately $4.7 billion.
A small market share shouldn’t detract from the significance of the tariff dispute. Premium televisions tend to be more expensive, have higher selling prices and therefore create higher financial impact on particular items when considered from a customs classification perspective. This may therefore be significant for the manufacturers wanting to ramp up OLED manufacturing in India and also for the policy makers on how to treat the new display technologies under the current tariff rules.
The situation is concerning for Samsung as the brand is continuing to fight in the highly evolved consumer electronics market in India. The South Korean company offers a wide selection of television sets and other display products, including premium OLED televisions and advanced display products, in South Korea. The company has also heavily invested in bolstering manufacturing and distribution efforts in India.
Samsung told Reuters in a statement that it is “reviewing the issue and is working fully with the relevant authorities but remains strongly committed to abiding by all laws.
The investigation does not mean that the companies will be eventually held liable for breaking the customs rules in India. Investigations of this type may require a thorough review of product classifications, import documents, relevant tariff notifications and the analysis of the technical detail. In addition, if customs or tax authorities decide at a later date that further duties are due, a company may also resort to legal action.
The companies may be asked to pay additional customs duty if the Indian authorities decide that the lower tariff was not properly applied. In addition, penalties may be imposed in accordance with the Indian law, depending on the case and the results thereof. No one involved in the investigation revealed any specifics on the extent of the duty that authorities think may have been under-compensated.
