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Make in India and taxation as a tool to promote it

CA Rohit kapoor 
Updated on 10 August 2020

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What is Make In India?

Make in India is an initiative program to the Government of India, to encourage companies to manufacture their products in India. It is a new national program designed to transform India into a global manufacturing hub. It contains a raft of proposals designed to urge companies — local and foreign — to invest in India and make the country a manufacturing powerhouse. It was launched by Prime Minister Narendra Modi on 25 September 2014.

Sectors covered

The major objective behind the initiative is to focus on 25 sectors of the economy for job creation and skill enhancement. Some of these sectors are:

Automobiles, chemicals, IT, pharmaceuticals, textiles, ports, aviation, leather, tourism and hospitality, wellness, railways, auto components, design manufacturing, renewable energy, mining, bio-technology, and electronics. The initiative hopes to increase GDP growth and tax revenue.

Why Make in India?

Narendra Modi has rightly picked "Make in India" as the most important plank in his drive to help accelerate the country's rise towards becoming an economic superpower. 

His target is to grow the manufacturing sector's contribution from 17 percent of India's gross domestic product (GDP) in 2013 to 25 percent within the next decade. A rapidly growing manufacturing sector is the only way India can create highly productive jobs for the 10 million-plus youngsters who join the country's labor force each year and the much larger number of farmers who need to move from working the soil to the working on the factory floor.

Taxation as an Instrument for Promoting “Make in India”

The government's 'Make in India' campaign is an ambitious initiative to move India on to the fast-track path of becoming a world-class manufacturing hub.

The measures outlined by the government to introduce new tax incentives will play a crucial role to transform India into a global manufacturing hub and attract large scale investment. Further, to ensure success, it is important to ease the regulatory and procedural hurdles of doing business in India. India ranks 134 out of 189 countries in the World Bank’s ease of doing business index in 2014. 

Some of the key incentives which would boost this Make in India initiative are as under:

1) Minimum Alternate Tax (MAT) on SEZ profits

At the time of instituting the SEZ Act, the Government had promised investors that MAT would not be applicable on SEZ units. However, the exemption on payment of MAT is no longer available to SEZ units. Further, post withdrawal, activities in development of SEZ and units in SEZ has considerably slowed down. Reinstating the exemption will immensely boost non-resident investors in manufacturing goods in an SEZ providing aid to the “Make in India” campaign. It may also be noted that according to the Press Release dated 13 August 2014 issued by the Ministry of Commerce and Industry (Department of Commerce), the Ministry has already recommended the restoration of the original exemption of DDT and MAT.

2) Scope of section 80-IA

Currently, eligible industrial undertakings engaged in infrastructure development are eligible for deduction under section 80-IA of the Act. In order to attract more investment in business of manufacturing defence and aerospace equipment, the scope of units eligible for deduction under section 80-IA should also be extended to units engaged in business of manufacturing defence and aerospace equipment. Furthermore, it would also make India self-sustained in terms of defence equipment, for which it mainly depends upon other developed economies.

3) Additional depreciation

Additional depreciation @ 20% is admissible when new machinery or plant is acquired and installed by the assessee who is engaged in manufacture or production of any article or thing. In order to further stimulate investments in the manufacturing sector, the rate of additional depreciation could be increased.

4) Expenditure on scientific research

Currently, as per the provisions of the Act, weighted deduction of 200% is available for expenditure incurred for scientific research on in-house R&D facility. In order to remove any unintended ambiguity, to expand the scope of the present provision, and to boost the overall manufacturing sector, the benefit of weighted deduction should also be extended to expenditure incurred on “building and infrastucture” exclusively used for R&D.

5) Implementation of GST

The much awaited introduction of Goods and Services Tax (GST) is another key indirect tax reform that would go a long way in promoting the “Make in India” vision. This reform will incentivise Indian manufacturing through removal of cascading and simplifying the current complex indirect tax structure. “Make in India” is an important initiative to promote manufacturing and generate employment, but its successful implementation will require a stable fiscal setup both at the Centre and State besides an industry friendly environment.

Highlights of Budget 2015-16 to promote “Make in India”

To promote domestic manufacturing and ‘Make in India’ for creation of more jobs, Arun Jaitley announced a series of cuts in customs and excise duties in the Union Budget 2015-16.


 

Both in terms of specific proposals such as reduction of customs duty on inputs and parts and the broad emphasis on making it easy to do business and infrastructure, the budget was unwavering in its attention on Modi's pet project. He announced customs duty cuts on 22 items that will make it cheaper for Indian companies to import parts to manufacture products.

He also sought to facilitate cheaper technology transfer to small businesses by more than halving the rate of income tax on royalty and fees for technical services to 10%.

Responses to “Make in India”

1) In January 2015, the Spice Group said it would start a mobile phone manufacturing unit in Uttar Pradesh with an investment of 500 crore. A memorandum of understanding was signed between the Spice Group and the Government of Uttar Pradesh.

2) In January 2015, HyunChil Hong, the President & CEO of Samsung South West Asia, met with Kalraj Mishra, Union Minister for Micro, Small and Medium Enterprises (MSME), to discuss a joint initiative under which 10 "MSME-Samsung Technical Schools" will be established in India. In February, Samsung said that will manufacture the Samsung Z1 in its plant in Noida.

3) In February 2015, Hitachi said it was committed to the initiative. It said that it would increase its employees in India from 10,000 to 13,000 and it would try to increase its revenues from India from ¥100 billion in 2013 to ¥ 210 billion. It said that an auto-component plant will be set up in Chennai in 2016.

4) In February 2015, Huawei opened a new research and development (R&D) campus in Bengaluru. It had invested US$170 million to establish the research and development center

5) In June 2015, France-based LH Aviation signed a MoU with OIS Advanced Technologies to set up a manufacturing plant in India to manufacture drones.

Friends, there is a lot of politics going on “Make in India” initiative taken by NDA Government. Congress Vice President Mr. Rahul Gandhi in an interview said that “Make in India is a Lion that won’t roar”. We should not carried away with such comments and views rather we should offer our full support to this Initiative to make India a Manufacturing Hub.

ROHIT KAPOOR
www.facebook.com/ConnectwithRK


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