Pre-Budget Discussion Points Raised By FIEO During The Meeting With Hon'ble Finance Minister
Pre-Budget discussion points raised by FIEO during the meeting with Hon'ble Finance Minister
(a) Linkage between FDI and tariff policy.
(b) Looking into the need of new technology for the economy, all FDIs relating to technology transfer in niche technology should be given approval online within a period of 30 days.
(c) Many Indian ITs companies are getting offer from start-ups in many countries seeking their support for which instead of making payment, which is about USD 40,000-50,000 such companies are willing to provide equities but such participation in equity is covered by overseas direct investment (outward FDI) which is having onerous procedure besides regular reporting. Since such equity participation by Indian IT companies help them to build their own brands and expand in such markets, such ODI may be made simpler with very little reporting upto USD 50000.
Instead of merging few small units into large-one, one can explore the possibility of value chain production wherein some of the units make parts and components, some make the final product and some make accessories for the same product. Such manufacturing should be preferred in a close geographical area so that the supply chain is integrated with minimal logistics cost.
Other alternative could be to make or upgrade clusters so as to provide common facilities like tool rooms, testing facility, certification facility all under one roof for units producing same or similar goods so that the operational costs are minimised.
3. Services expansion:
(a) Health sector is one of the fastest growing services sector but still huge mismatch exists between the demand and supply. We require close to 3 million beds to reach the target of 3 beds per 1000 people by 2025. We require about 1.5 million doctors and 2.5 million nurses to meet the growing demand of the sector.
(b) MICE (Meeting, incentives, conference and exhibition) business is shifting from India to Sri Lanka, Singapore and Thailand due to high GST rate of 28% as such facility are generally in large hotel having room tariff of over Rs 7500 per day. The GST rate may be lowered to 18% if not to 12%. Government should also consider to provide exemption from GST on mode 2 of services which is treated as exports in the Foreign Trade Policy but not under taxation Policy.
(c) Sales to foreign Tourist: To be operationalised under GST to provide refund of GST at the airport as envisaged under IGST Act. It will give fillip to tourism besides helping exports of handicrafts, non-precious jewellery, carpets, ayush and herbal products, beauty products etc.
Reduction in tariff protection will increase efficiency with rising competition but at the same time an honest assessment has to be made as to whether the industry would be able to sustain with such reduction in tariff particularly when inverted duty structure remains a challenge. Tariff reduction would also take away some sheen out of the strategy through which we allure our tariff partner to provide us more market access. This also hits at FDI inflows as with reduced tariff companies may not be eager to set their base in India and continue to supply the products from overseas manufacturing facility taking advantage of low or moderate duty.
5. Tax Deductions on Product Development & R&D:
Section 35 (2AB) of Income Tax Act may be relooked into to so as to provide tax deduction not only on R&D but also on product development as product development is key in exports and should be encouraged. The tax deduction on R&D expenditure which has come down from 200% to 100% now may be restored to its original position as R&D investment in India is extremely low (1% of GDP) and most of the R&D is being done at the behest of the Government or in sectors like pharma where it is Hobson’s choice.
6. Corporate Tax:
The corporate tax was announced to be reduced to 25% in 2015. The same has already been reduced to 25% for businesses having turnover upto Rs.250 crore. The corporate tax reduction may be extended to all entities particularly as it will attract FDI also more so in view of the fact that US has reduced corporate tax from 35% to 21% in 2018(Combined rate from 38.9 to 25.7%).