The government plans to cut taxes on imported components as part of its broad strategy to aid manufacturing revival through Prime Minister Narendra Modi’s signature ‘Make in India’ campaign. An announcement is likely to be made in the upcoming budget.
Local business leaders have long pointed out that import duty on components and raw material pushes up costs of final goods, thereby reducing Indian products’ competitiveness in the global market.
“To make ‘Make in India’ a success, the government is looking to remove as many barriers as possible and we will look into the tax issues as well,” a government official told HT on the condiion of anonymity.
The government is also looking to address the concerns of the inverted duty structure — where domestically-produced goods cost more than imported ones — in the budget by rationalising the special additional duty (SAD). SAD is currently levied at 4% to provide a level-playing field to indigenous goods, which have to bear the burden of sales tax. The central sales tax is, however, currently much lower than SAD.
Launched in September, the ‘Make in India’ initiative seeks to turn India into a manufacturing powerhouse by removing bureaucratic sloth, easing procedures and removing red tape that stand in the way of investments.
“The issue of inverted duty structure needs to be addressed to attract investments and provide a level-playing field. In several sectors, the duty on finished goods is lower than raw material prices…this will provide the required fillip to the ‘Make in India’ campaign,” Pratik Jain, partner, KPMG, told HT.
The government has set a target of raising the share of manufacturing in India’s GDP from 18% to 25% in the next 10 years.
The government is also examining options to offer tax breaks to small and medium enterprises that account for 40% of the country’s manufacturing output and 8% of GDP, and employs 100 million people.