|Not biting into the Apple|
|Friday, 06 January 2017 00:47|
Govt does well to not give it tax breaks to invest here
Given how keen it is to attract FDI, the government has done well to not give in to Apple Inc’s reported demands for tax concessions for a unit it plans to set up in India. The temptation to bag a chunky investment from a blue chip MNC, in lieu of some revenue, could not have been easy to resist. But to its credit, the government has desisted from pandering to the whims of one player, even if that player is among the world’s most reputed seller of mobile phones. Though India attracted $36 bn of FDI in FY 2016, up from $31.3 billion in FY15, estimates for the current year are pegged at a slightly smaller $35 billion despite the September quarter pulling in as much as $17.2 billion. Clearly a capital-starved economy like India can put FDI to good use at a time when overall investments have been stagnating – just 417 new projects worth Rs 1.4 lakh crore were added in the three months to December, 2016, the slowest pace of quarterly additions in a decade.
While the government has offered sops for manufacturing phones in India in the form of lower countervailing duties (CVD), this applies to local and foreign firms and is in keeping with global duty levels. Indeed, most players are not looking for tax sops and would be happy to set up shop here if the regulatory regime is stable and they are not harassed by the tax authorities. After all, the Indian market is huge and growing, and players like Apple have a miniscule market share. However, there have been too many instances of foreign companies being harassed by the tax authorities – a case in point is the shutdown of the Nokia unit in Chennai. Consequently, some reassurance that rules and regulations would not be changed frequently would help. In this context, the government would do well to specify the taxes and other levies that would be applicable once GST is rolled out – in the case of phones, for instance, the CVD incentives can’t be retained; there is concern on the state-level incentives like VAT too since these are incompatible with GST. In general, there’s little harm in relaxing onerous rules – for everyone – if this pulls in more investments and, in any case are not in sync with global practice. One such example is the 30% local-sourcing rule that Apple has asked the government to ease to allow it to set up single-brand retail stores.