Electronic goods companies, including multinationals that have been operating in India for at least a decade, could see pressure on profit due to a proposed rule on electronic waste disposal and its treatment under current accounting standards. Companies such as Samsung, LG, Apple and Nokia will be required to collect a predetermined percentage of the goods they sell every year, stretching back over the past 10 years.
Under Indian Account Standards (Ind-AS), the companies will be required to provision for this cost in the current fiscal, leading to a possible erosion in earnings. They have asked the Ministry of Environment, Forests and Climate Change to amend the rule and strip out its retrospective nature.
E-waste includes mobile phones, tablets, computers, television sets, washing machines and refrigerators. The regulations also indicate the life span of a product— such as five years for mobile phones and 10 years for washing machines. If the rules are put in place without changes, companies may look to pass on the costs to consumers, experts said, estimating that prices could rise 1-4% in that case.
“ACE (appliance and consumer electronic) and phone makers could have significant financial implications on their books as they will have to provision for e-waste they collect on their last eight to 10 years’ sales,” said Manish Sharma, president of the Consumer Electronics and Appliances Manufacturers Association (CEAMA) to ET.
Accounting experts said provisioning has to be made in the current financial year for most consumer goods companies. “Due to the new requirements, many consumer goods companies will have to make a provision for the cost of meeting the e-waste collection targets, which in turn is linked to the past sales of the product and its expected life,” said Sai Venkateshwaran, head of accounting advisory services at KPMG in India. “As per Indian accounting standards, this provision needs to be made taking into account sales of past periods, and this impact will come in the current fiscal which would impact the bottom line of a company.”
“I would say for every Rs 5,000 crore of sales, the estimated cost could be anywhere around 1% to 4% of the cost,” said an accounting expert helping some companies. “So it would come to Rs 50 crore to Rs 200 crore per year for a company with such revenue.”
