NEW DELHI: A handset lobby body has warned the government of a risk of losing Rs10,000-15,000 crore of future investments in mobile manufacturing, if the system of state incentives is not revived in some manner under the goods and services tax regime.
In a recent letter to cabinet secretary Pradeep Kumar Sinha and Niti Aayog vice chairman Rajeev Kumar, the Indian Cellular Association (ICA) said the incentives for local manufacturing has virtually collapsed after the introduction of GST, , and urged the government to “honour its commitments” to support the Make in India programme.
ICA chairman Pankaj Mohindroo said the transition from VAT to GST created an unintended, but serious, issue which is hurting the image of India as a whole and state governments in particular on living up to commitments, and impacting future investments because of lack of clarity on rules.
The body termed mobile phones and components as the champion sector in ‘Make in India’, with more than 120 plants mushroomed in the last three years, encouraged by policies to boost local manufacturing. If things go as per plans under the phased manufacturing programme, some Rs22,000-23,000 crore more of investments are expected in the next three years.
Almost 90% of all handsets currently sold in India are locally manufactured, according to Counterpoint Research.
Outlining the issue, the ICA said in the earlier VAT system, state governments could incentivise manufacturing under which they had powers of levy, exemption and disbursement of VAT revenue as incentives. But under GST, this is not possible since there is only one common law to be followed by both the central and state governments.
To attract investments, most state governments were offering VAT reimbursements primarily linked to fixed capital investments, or reimbursement commitments for 5-7 years. Central sales tax was also usually a part of this incentive.
Under GST, an SGST refund mechanism was mentioned as an alternative and successor to VAT refund. The ICA, however, said now the actual SGST payment has become nil because most of the transactions are taking place in the IGST mode and raw material or input purchases are either imports or from outside the state.
Moreover, the IGST rates are further inverted in many cases — for example battery packs are at 28% against the final product of 12%, it said, adding: “This makes the case even worse.”
“Now, it's a no man's land situation. The Centre is saying that it's a state government issue, while states say it (inability to give incentives) is because of GST,” Mohindroo said.
The lobby body, in its short-term recommendations to the GST Council to resolve the matter, asked for an exemption for import and domestic IGST on electronic manufacturing only for components/inputs under the actual utilisation condition.
Such a move, the ICA said, will not entail any revenue loss to the government but will ease the cash flow situation for actual manufacturing and will re-energize SGST reimbursements without any associated problems. “What will emerge in this situation will be that actual SGST payments will start getting made in cash and eventually the reimbursement issue will somewhat get sorted out.”
The ICA has also urged state governments to refund the portion of the incentives which may have accrued, based on the VAT rate and theoretical calculation till the authorities arrive at a clear policy for the future.
“We would request you and all the major states to take the matter up very urgently and resolve the same for the period 1-7-2017 when GST was introduced till date and also arrive at a final solution for the future. This will redeem India’s image,” Mohindroo said.
Source: economictimes.indiatimes.com