Apple has submitted a formidable wish list of pre-requisites — the prime being a 15-year Customs duty holiday on import of iPhone kits, new and used capital equipment, and consumables — to establish an iPhone production facility in India.
Its application seeks “full duty exemption on manufacturing and repair inputs (raw materials), yield loss on inputs, components, capital equipment (including parts), and consumables for smartphone manufacturing and services/repair for a period of 15 years for both domestic and export markets”.
Apple’s “desired model for entry” shows that it does not intend to source locally, as it has sought duty cuts on components, completely knocked down (CKD) and semi knocked down (SKD) units of iPhones, for re-assembly at the finished goods manufacturing line to be set up in spring this year.
Commerce Ministry officials said the demanded duty break would require a trade policy change for the entire industry as it would need to be extended to other companies, including Samsung, who have set up phone manufacturing units in India.
Last week, Commerce and Industry Minister Nirmala Sitharaman said the government was yet to take a view on Apple’s demands. “We are discussing that… no other mobile manufacturer has sought any extra concessions… we have not taken any decision,” she said.
Her ministry would have to usher another policy level change in the Export Promotion Capital Goods scheme as Apple wants inclusion of “used” capital goods, spare parts and components under the scheme for duty free imports. The EPCG scheme currently forbids import of second-hand capital goods or spares.
Apple’s rationale for used equipment is that multinationals capitalise on efficiencies in the allocation of resources throughout their supply chain and shift equipment between manufacturing lines and locations. “This requirement translates into our request to include new and used capital equipment in the scope of both EPCG and MSIPS (Modified Special Incentive Package Scheme),” says its application with the ministry.
The MSIPS is meant to attract large investments in electronic manufacturing through capital subsidy and also provides reimbursements of central taxes and excise duties for capital equipment for 10 years from the date of approval.
The Cupertino giant has said that it plans to place “initial emphasis” on iPhone finished goods manufacturing based in Domestic Tariff Area (DTA) with some elements of Special Economic Zones (SEZ) or Export Oriented Units (EOUs), to serve both domestic and export markets equally.
It has, therefore, requested that its DTA unit be allowed the same provision as is available in SEZs on import, repair and re-export of defective units without any constraint on the age of the defective units. Currently, production units in DTA can only repair products exported from India up to a three-year period.
“Since these units are destined to be re-exported, it is necessary to remove the time constraint imposed on the age of the product,” it said, assuring that the exemption would not be misused to abuse the environment regulations.
Apple does not want the government to levy extra taxes or impose fresh barriers on import of finished goods in the proposed Goods and Service Tax (GST) regime either.
“As GST would subsume all indirect taxation and the government will be looking at keeping a differential to provide an advantage to domestic manufacturers, we would strongly advocate for the government not to impose any additional hurdles or taxes on the importation of finished products.”
Other requests are:
Expeditious processing of Apple’s Advance Pricing Agreement in the Income Tax Department to achieve certainty on the arm’s length pricing applied to international transactions between the Indian company and its overseas affiliated companies.
Aligning Customs procedures to provide less intrusive inspections, “always open” clearance process, combined declarations on a periodic basis rather than declaration at each transaction, suspension of paying integrated goods and service tax at the point of importation so as to avoid actual tax payments, followed by claims for refunds so that administrative and cash flow costs could be evaded.
Apple’s earlier request to exempt it from adhering to domestic sourcing norm of 30 per cent as rider for investing in single brand retail was approved by the Prime Minister’s Office last June. Apple was then asked to send its consent so that its proposal could be further processed for grant of approval. It is yet to send a response to it, says a ministry letter.
Till date, Apple sells iPhones and other Apple gadgets through its licensed re-sellers and distributors in the country. It is betting big on the India market, where it currently holds a minuscule 2 per cent market share, what with slowing growth numbers in the developed markets like the US and China.