While the Indian electronics sector has been witnessing a consistent growth in terms of market size, India lags behind in electronics hardware manufacturing capabilities due to innumerable challenges including high cost of power and finance, high transactional costs, prevalent tax structure and poor base of supply chain. Some of the issues and recommendations in this regard for the consideration of the government are given below:-
Incentivize Design-led Growth Investment in R&D and IPR
Electronics manufacturing in India is confined to low end value chain. There is need to transition to Design in India and IP creation. Currently, private sector R&D does not get Government funding unless it ties up with Government R&D organizations. India has a promising hardware engineering talent and vibrant design competencies; hence Design in India can lead to Make in India. There are various design elements such as the whole fabrication, mechanical design, the PCB (printed circuit board) layout, component selection, RF testing that can be done in India. It is suggested that suitable incentives may be introduced by the Government to encourage Design in India to achieve Make in India with increased focus on R&D and IPR. Design in India will ultimately lead to job creation, generating intellectual property, address huge domestic demand and export opportunities, creation of local component ecosystem, and manufacturing of world class products in India.
Incentivize manufacturing by providing throughput based incentive
All incentives available to manufacturing are capex based incentive. It is recommended that the Government may consider providing throughput based incentive (on what we manufacture) both for domestic and export for a timeframe of three to four years. One way to provide this incentive is through the provision of production subsidy which has been introduced under the MSIPS Scheme vide notification of 3rd August 2015 (which includes high value added items such as semiconductor wafering, logic microprocessors, ICs and added new components such as PCB, discrete semiconductors fab, Power Semiconductors Fab and ATMP etc.).This provides for a 10 percent Production Subsidy on the value addition by the manufacturing unit. Thus, higher the value addition, higher the subsidy and vice versa. It is recommended that production subsidy be extended to include all components and raw materials which are covered under Information Technology Agreement 1 and are subject to Zero Customs Duty.
Increase Basic Customs Duty on Select Products
The BCD on import of select non-ITA goods be raised to a permissible limit in order to discourage the traders from importing such goods into India and selling the final product with mere screw driver assembly technology. These products/Finished Goods should however be decided with Industry consultation. The high technology and low volume products should not be considered for any such BCD raise and only the products which are in voluminous in nature and have developed local indigenization capability or being manufactured in the country should come under BCD raise. The discrete components however may be exempted from levy of BCD when imported into India for manufacture of these products/finished goods. However, the Populated Printed Circuit Boards be brought under the levy of Basic Customs Duty as it will give encouragement to local value addition.
Encourage domestic manufacturing of Printed Circuit Board Assembly (PCBA)
PCB is considered to be most important component of any Electronics/electronic product. India has potential to populate PCB in India. There are more than 500 sophisticated Surface-mount technology (SMT) lines that are available which can take up manufacturing of populated PCBs immediately. In absence of PCB manufacturing, many of the companies have curbed their manufacturing operations and switched to trading and some of them get their products manufactured through overseas EMS providers in Taiwan/China. These companies can entice their EMS providers, who have already shown inclination to relocate to India if the benefits being made available for domestic manufacturing on populated PCBs along with existing demand for their products. It is accordingly recommended that PCB assemblies of non-ITA-1 items should be subjected to minimum customs duty. This would ensure that the basic customs duty becomes a cost in the import of PCBA which would create duty differentiation between imports and domestic manufacture.
Provide Clarity on rate of GST on toner cartridges
There is no clarity on the applicability of rate of GST on toner cartridges. It is recommended that suitable clarity be provided on the rate of GST applicable to toner cartridges to avoid any litigation on this account in future.
Provide Clarity on availability of input tax credit on inputs used for in-warranty/AMC supplies
A warranty is a written guarantee for a product and it declares the responsibility of the maker to repair or replace any defective products or parts. While the rectification is done on a free of cost basis, the cost of rectifying the defect is included in the original price at which the goods are supplied. Further, in case of annual maintenance contracts (AMC) supplies, the cost for providing the repair is collected at the time of entering into the AMC contract and the goods are supplied free of cost subsequently when the time arises for repair of goods. Under the GST regime, there is ambiguity as to whether the supplier would be eligible to claim input on procurement of parts which shall be used for warranty replacement and AMC. It is recommended that appropriate clarity be provided that ITC shall be allowed on parts used for warranty replacement or in case of AMCs.
Provide clarity on refund of input tax credit in the case of inverted duty structure due to input services
As per first proviso to section 54(3) of the CGST Act, 2017, refund of unutilized input tax credit is allowed in the following two instances:-
(i) zero rated supplies made without payment of tax;
(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council.”
As per the above provision one of the cases where refund of input tax credit is allowed is when underutilized credit is on account of rate of GST paid on inputs being higher than the rate of GST on outward supplies made by the supplier. However, there is ambiguity regarding refund of input tax credit in case here the inverted duty structure arises as a result of rate of tax on input services being at a higher rate in comparison to the outward supplies. It is requested that appropriate amendment be made in the GST law to provide for allow ability of refund in case of inverted duty structure arising on account of input services. This would provide much needed clarity on this aspect.
Reduce customs duty on compressors, motors, electronic components
There are components like high efficiency compressors and motors, Electronic components, vacuum insulation panels (required for meeting the higher BEE energy regime) which either do not have domestic manufacturers or there are severe capacity and competition constraints, accordingly the peak duty structure of 7.5 percent should be reduced. This will help the energy regime to deliver better products to the customer at reasonable prices.
Reduce GST Rates
The consumer durables has been placed in the same bracket of tax as applicable to sin goods. These goods are subject to the highest rate of GST @ 28 percent. It is submitted that consumer durables are essentials and cannot be considered as luxury especially items such refrigerators and washing machines in today’s era. It is emphasized that the rate of GST on consumer durables should be reviewed and reduced by the Government at the earliest. – TV Veopar Journal Bureau