Business Today
Union Budget 2015-16: Govt should undertake next-generation tax reforms
The government should act on the following suggestions to create a healthy business environment and efficient administrative machinery.

title=/

Manish Sharma


Urbanisation coupled with rising disposable incomes in the country is pushing the demand for white goods to new heights. Given these encouraging trends, the expectations of the consumer durables industry from the upcoming Budget are high as it is going to have a sizeable impact on not just the future of the industry but also in shaping consumer sentiment.

In the current scenario, it has also become imperative for the government to create opportunities for small and big traders.

The Indian consumer durable sector is poised for steady growth from 11-12 per cent annually, owing to high consumer confidence. Hence, there is a huge opportunity for manufacturing in India. The government's 'Make in India' initiative can take India to new heights by not only propelling domestic manufacturing but making the country a global manufacturing hub for export to markets like West Asia and Africa.

FULL COVERAGE:Union Budget 2015

Nevertheless, there are certain challenges faced by manufacturers, like the inverted duty structure due to Free Trade Agreements (FTAs) that make Indian manufacturing uncompetitive for white goods such as washing machines, refrigerators and air conditioners. There has been a rise in imports from low cost regions such as China and South East Asia. Also, Modified Special Incentive Package Scheme (MSIPS) is currently not applicable to the above mentioned consumer durables products. Moreover, insufficient and under-developed local supplier base and high cost of capital and other manufacturing costs due to frequently revised energy efficiency requirements do not provide the local manufacturers a favourable environment.

The government should act on the following suggestions to create a healthy business environment and efficient administrative machinery.

>>Build local scale by driving domestic consumption, and promoting exports from India

1. Increase the local demand base so that companies look to increase manufacturing. Currently, the companies have adequate facilities to service demand for the next five-six years. Hence, RBI needs to reduce interest rates to increase disposable income in the hands of consumers which would lead to an uptick in discretionary spend on consumer durables.

Rollback of excise duty: The 'Make in India' campaign intends to make India a manufacturing hub and see higher job generation in the country. Excise duty needs to be reinstated at 10 per cent instead of the current 12 per cent as the industry is still struggling.

Introduction of zero per cent finance scheme: Allowing companies to offer such schemes not only drives sales of consumer durables even in a lacklustre economy but also empowers consumers looking to buy consumer goods on easy monthly instalments without paying any interest on the loan amount. Almost 30 per cent of the overall sales happen through financing schemes.

Increase the demand base by incentivising exports: Need to develop the export base for a boost to manufacturing.

Reduction in trade barriers and trimming of products in the 'Sensitive List' under South Asian Free Trade Agreement (SAFTA) exports from India, especially to Bangladesh. This would open up new markets for Indian manufacturers.

Inclusion of certain African and West Asian countries in the Focus Market Scheme (FMS) for increased demand for manufacturing and export promotion. It would be highly encouraging if we can get some benefits in the following countries:

1. Oman

2. Nigeria

3. UAE

4. Saudi Arabia

5. SAARC countries

Initiatives to promote technology transfers through joint ventures with overseas companies across industries.

>>The status of 'deemed export' should be granted to products/components manufactured and sold in India. This would enable the benefits of drawback, advance authorisation and refund of output excise duty paid by manufacturers by availing credit of input taxes paid on components imported and made in the country and paid for in cash for value addition.

>>Review and amend taxation regime, duty structures and incentive schemes to (a) make the process simpler (b) increase competitiveness of local manufacturing.

a. Implementing a uniform Goods & Services Tax (GST): GST is expected to decrease compliance burden for businesses as well as reduce paper work. It will create a seamless pan-India market and also bring down the total incidence of taxes by eliminating cascading effect of taxes on goods and services. The Budget needs to remove the inefficiencies in the system like inverted duty structures to pave the way for an efficient GST.

b. CST exemption for any inter-state purchase of components or raw materials

c. Special Additional Duty (SAD): Besides impacting cash flow, SAD pushes up the duty for the manufacturing sector along with countervailing duty to 17 per cent compared with output excise duty of 12 per cent. This is not aligned with the 'Make in India' initiative as it will discourage multinational companies from manufacturing in India.

d. LCD/LED/FPD to 0 per cent to provide a level-playing field to domestic manufacturers as well as importers of FPDs, encourage panel manufacturing in the country, and create a competitive environment

e. Magnetron and other inputs for manufacture of microwave ovens. This would result in more companies manufacturing microwaves in the country leading to India tapping the export potential of the product category.

f. Pre-printed steel sheets & other parts for manufacture of air conditioners, washing machines and refrigerators in order to enhance manufacturing set-ups and furthering the objective of making it a manufacturing hub and creating new employment opportunities    

g. The government needs to revisit inefficiencies in the system like inverted duty structures due to various FTAs, which is leading to manufacturers increasing finished product imports instead of local manufacturing as components entail higher duty payments.

We are hopeful that the government would undertake next-generation tax reforms to ensure swift growth as the industry seeks tax relaxations and amendments in the current Budget to stimulate the economy and continue on the path of fiscal consolidation.

The author is the President of Consumer Electronics and Appliances Manufacturers Association (CEAMA) and Managing Director, Panasonic India & South Asia

Get latest news & live updates on the go on your phone with our News App. Download The Business Today news app on your device