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Mobile industry body Indian Cellular Association has sought a 10-year tax holiday to scale up mobile manufacturing to international standards to help India become competitive as against preferred destinations like China and Vietnam.
"ICA recommends that the 10-year tax holiday may be granted on a block of 15-20 years on all profits and gains under Section 80 IA of the IT Act, 1961, for manufacturing or rendering of services in or in relation to mobile handsets, parts, component accessories and various core components subject to fulfilment of value addition norms," ICA said in its submission to the finance ministry.
The industry body acknowledged that some of the tax measures of the government led to growth of mobile handset manufacturing by approximately 185 per cent in value and 90 per cent in volume in 2015-16 over 2014-15.
"Rs 54,000 crore worth mobile handsets were produced during this period from Rs 18,900 crore in 2014-15. In the current financial year, manufacturing is estimated to grow to Rs 94,000 crore, which would be an estimated 75 per cent year-on-year growth," ICA said.
The recommended tax holiday is expected to bring in fresh investments in plant and machinery and other equipment of durable nature. ICA estimates that Rs 1,000 crore of additional investments in plant and machinery are required from every 130 million rise in production capacity.
According to ICA, boost to mobile manufacturing discouraged import of mobile handsets by 4 per cent in 2015-16 over 2014-15 and is further estimated to drop by over 29 per cent in the current fiscal over 2015-16.
The industry aims to produce 50 crore mobile handsets annually in the country with value around Rs 1.5-3 lakh crore by 2019 and production of 125 crore handsets with an estimated value of Rs 15 lakh crore by 2025-26.
The industry has set export target of 12 crore handsets by 2019-20, which can go up to 20 crore by 2019-20, and 80 crore by 2025-26, as per the ICA submission.
Currently, India does not offer income tax incentives on manufacturing of mobile handsets and components, it said.
"While India is strongly positioned to replace China on establishment of a robust mobile handset and component manufacturing ecosystem over the coming years... Lack of availability of direct tax incentives is considered to be a major impediment," ICA said.
The industry body backed up, saying Vietnam offers 30 years of tax holiday window at just 10 per cent tax on mobile manufacturing along with other incentives.
The current manufacturing operations in China in the mobile handset ecosystem is estimated at 32-35 times more and that of Vietnam's mobile manufacturing industry is 7-8 times bigger than that of India in value terms, it noted.
"A deep analysis regarding establishment of robust mobile
handset manufacturing industry in China and Vietnam during the past decade would indicate this fact that lucrative incentives, especially income tax holiday and export benefits, compelled the industry to move to these destinations," it said.
ICA said a phased manufacturing programme (PMP) was instituted by the Ministry of Electronics and IT (MeitY), which led to setting up of 15 new component manufacturing plants generating more than 20,000 new jobs.
MeitY established a Fast Track Task Force (FTTF) to establish a sizeable component industry with a turnover of over Rs 50,000 crore by 2019.
ICA has recommended delinking PMP from budget, saying it "should be announced or notified in advance as a 4-5 year programme as per a Government of India commitment" as it takes at least a lead time of 6-24 months for companies to execute plans to set up manufacturing facilities depending on technological and capital criticality factors.
