Manufacturers Await Tax Protections in India’s 2018 Budget

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By Siri Bulusu

Indian manufacturers are asking the Finance Ministry to introduce tax policy measures in the upcoming budget to protect domestic steel and solar panel manufacturers.

If industry requests to the government are taken up, the 2018 Budget, set for Feb. 1, may include an import tax exemption on raw materials used in steel production to promote local steel manufacturing, practitioners say. And introduction of a 70 percent tariff on imported solar panels would boost domestic producers, they added.

Most indirect taxes fall under the purview of the Goods and Services Tax Council, a government body charged with administering the new indirect tax system, but the Finance Ministry can amend import and customs duties.

In its pre-budget submission, India’s Ministry of Steel asked for a reduction on all import duties on metallurgical coal (met coal) and other raw materials used in steel production because prices on raw materials have been increasing over the past year, a steel ministry official told Bloomberg Tax Jan. 31.

Current taxes payable on met coal are a 2.5 percent basic customs duty and an integrated goods and services tax of 5 percent.

The GST rate applicable to raw materials can only be changed by the Goods and Services Council, but the 2.5 percent basic customs duty could be removed in the upcoming budget proposal.

Prices need to improve or input costs should improve, the official told Bloomberg Tax, adding that “every drop counts” when balancing the market conditions for the domestic steel industry.

Demand is Growing

India’s steel demand is expected to grow by 7.1 percent in 2018, according to a 2017 World Steel Association report, and practitioners say the health of the sector is crucial for the government to make a push for improved infrastructure.

“Over the past few years, Chinese steel has been very competitive and eating away at the Indian market, so the industry could be protected by reducing input costs for domestic producers,” Pallav Narang, a partner at the chartered accounting firm Arkay & Arkay, told Bloomberg Tax Jan. 31.

Solar Panels

Domestic manufacturers could so another tax policy change in the 2018 budget aimed at protecting India’s solar panel manufacturers from Chinese competition: a 70 percent tariff on imported solar panels.

The proposed tariff hasn’t yet been imposed, but practitioners say it could be a highlight in the budget proposal and an indication that the Indian government is serious about promoting its domestic solar energy market.

In November 2017, the Indian Solar Manufacturers Association submitted an application to the Directorate General of Safeguards, Customs and Central Excise, asking the body to investigate the impact of solar panel imports on India’s domestic manufacturers.

The investigation projected that the growth rate of imports of solar cells from China, Malaysia, Singapore and Taiwan would increase to 643 percent in 2017-2018, with the “major quantity” of imports coming from China, according to the report released on January 5, 2018.

The increase in imports of solar cells will cause “serious injury to the domestic industry,” according to the Directorate General of Safeguards, which proposed a provisional safeguard duty of 70 percent be imposed.

“Basically, the objective of the Directorate General of Safeguards is to evaluate what the price is in the local market, the manufacturing costs and at what price those products are being imported into india and sold to ultimately determine what injury is being done to the domestic market,” Suresh Nandlal Rohira, a partner at Grant Thornton India LLP, told Bloomberg Tax on Jan. 31.

To contact the reporter on this story: Siri Bulusu in New Delhi at correspondents@bloomberglaw.comTo contact the editor on this story: Penny Sukhraj in London at psukhraj@bloombergtax.com

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