Budget expectations of the manufacturing industry
Manufacturing in India has truly come of age in recent times. Merely for the economic downturn, it would have contributed 5-6% more to the gross domestic product (GDP). A recent study of 700 manufacturing firms across the rural area for the National Manufacturing Competitiveness Council reveals that the leadership of this revolution were mid-size firms that possessed the right mix of product form and intensity to serve domestic and worldwide marketplaces.
Some of the key prospects from the Government in tax and regulatory affairs are as follows:
- The stringent regulatory policies, mandatory for entry of Multinational Companies (MNCs’) need to be liberalized to encourage investments in specialized sectors such as aerospace and defense.
- The withdrawal of Investment Allowance has had a substantial negative impact on the overall investments in the economic system. It has resulted in stagnation of capital formation as a proportion of GDP. The resurgence of investment allowance, especially in the infrastructure and core sectors would encourage new investments.
- Availability of land required for setting up industrial units has been a bottleneck for the manufacturing sector. The majority of the projects has been stopped due to protests staged by the local population and the failure of the respective governments to provide a conciliatory solution to the affected people. Therefore, there is an urgent need for settlement of land related disputes and land allotment policy measures.
- In order to attract investments in state of the art technology sectors, policy measures in the nature of fast track clearances, financial incentives, etc. should be promoted.
- Higher depreciation for Capex or Technology used in the manufacturing can further boost the growth of the manufacturing sector.
- Withdrawal of deduction under section 80 HHC for export turnover as well led to the more sluggish development of export and consequently manufacturing sector. Thus, introduction of export related tax incentives could be looking to further boost exports.
- The mandatory requirement of furnishing PAN for TDS purposes has complicated the investments and payments of technological support received from foreign companies. A review of the TDS provisions could help the industry as a whole.
- The proposed Direct Tax Code (DTC) has laid down removal of certain exemptions, deductions specifically amending the basis for calculation of MAT, denying the carry forward of MAT, no tax holiday etc. which are in the nature of negative drivers for the manufacturing sector. Attention to such drivers could help the manufacturing sector to lay the path of growth in the scenario where the meltdown and financial crisis has already affected companies globally.
- In India, the manufacturing sector is subject to multiple indirect taxes and duties which add up to about 24 %, of the total cost of the commodities.
- The rates of excise duty were brought down to a median rate of 8% as part of the Government’s fiscal stimulus package. This has helped the manufacturing sector to grow, which is evident from the various surveys and studies conducted in the recent past. In continuation with the current excise duty rates would help the sector to withstand against the present financial crisis and falling exports.
- Full Cenvat credit on capital goods should be allowed in the year of receipt thus cutting down procedural hassles, incentivize capital investment and improve liquidity.
- Service tax is a key indirect tax in later times. It is a significant input tax for manufacturers. The Government needs to clarify the availability of Cenvat credit on services of outward transportation and incidental activities such as security, gardening, canteen, etc. to reduce the plethora of litigations in Cenvat credit. A clarification in respect of eligibility of input services used till the stage for which excise duty is required to be paid would help the manufacturing sector.