On September 20, 2019, the government of India has significantly reduced the corporate taxes to escalate investments in manufacturing sector which was affected by low demand, trade concern and record-high unemployment rate. Moreover, this unforeseen tax cut came right after the announcement by Reserve Bank of India to pay $24 billion to the central government. Cohesive policies to boost manufacturing sector will benefit the smartphone industry as well.
Finance Minister Nirmala Sitharaman announced in her speech on September 20, to have more investments in ‘Make-in-India’ initiative. Recent Tax deduction will create a lot more investment, a lot more employment generation, and a lot more economic activity. The country’s lower corporate tax will assist the smartphone manufacturing industry to expand, step up its production, and fuel research & development and finally, to attract higher- value component manufacturers to the 2nd biggest smartphone market across the globe. Furthermore, the previous tax rate was 30% which was slashed down to 22%. The effective tax rate for these companies will be 25.17% inclusive of surcharge and cess. Additionally, such companies will not be required to pay minimum alternate tax (MAT).
This move will further boost the country’s Make in India campaign owing to the expected investment and entry of major players. Presently, the country is competing with the likes of Vietnam and Indonesia to attract global manufacturers such as Apple, Foxconn and so forth to establish their presence in the country. Additionally, the tax cut will attract the contract manufacturers that are currently negligible in the South-Asia such as Pegatron of Taiwan and other high-end electronic component manufacturers.
Market has been sluggish due to global slowdown and economic policies. The tensions are escalating owing to the ongoing trade war between two biggest economies across the globe (the US and China). This has led to high tariffs on goods worth $10 billion and has shattered the global supply chain and ultimately led to manufacturing companies based in China to search for a new market. India has already stepped-up to grab this opportunity and attract investors to invest in the lectronics manufacturing sector. Moreover, the new manufacturing units which are set-up after October 1 2019, will have option to pay 15% tax rate, inclusive of surcharge and tax the new manufacturing units will have to pay 17.01% tax.
Additionally, the country scrapped tax on import of TV panel used to make Television, to assist the TV industry in reducing the price and increasing production. Furthermore, four senior smartphone industry executives said that it was too early to make speculations whether the companies will invest after the tax cut. However, according to Indian-based Lava and China-based Xiaomi, the tax cut would assist them to generate more employment and boost investments in local R&D.
The spokesperson of Xiaomi said, “We are hopeful that we will be able to bring more of our component suppliers to India and help boost the local manufacturing industry further,”. The company makes 99% of its mobile phones locally and enabled its supplier holitech a camera module manufacturer to establish a manufacturing plant in northern India. Moreover, the tax cut will attract component manufacturers such as display panels, lithium cells, and camera modules, industry executives and analysts said. It is hard to predict the benefits of tax cuts for individual companies. However, the lower tax rate will provide better margins to companies such as Apple and Samsung which sells high-level phones.
