The Union government of India on Sunday presented companies like Apple among others with a New Years gift. Finance Minister Nirmala Sitharaman on Sunday announced a landmark initiative where it would allow foreign companies to provide machines to their contract manufacturers in certain areas for five years without any tax risk.
This recent announcement from the Indian government provides strategic benefits to companies like Apple which has been growing its manufacturing presence in India in an effort to diversify its manufacturing process beyond China.
According to a market intelligence firm, Counterpoint Research iPhone’s share of the Indian market has doubled to 8% since 2022. While China still accounts for 75% of global iPhone shipments, India’s share has quadrupled to 25% since 2022.
Apple’s ‘lobbying efforts’
According to a Reuters report, Apple had been lobbying India’s government to modify its income tax laws to ensure the company is not taxed for ownership of the high-end iPhone machinery it provides to its contract manufacturers.
Apple reportedly was concerned that if it paid for machines for its contract manufacturers, Indian law could consider the process a so-called “business transaction” and impose taxes on its iPhone sales profits. It was this concern in of itself that had forced its contract manufacturers Foxconn and Tata to themselves spend billions of dollars on machines.
Broader tax-based budget day reforms in India
Sitharaman on Sunday said that the government is making certain law changes to ensure that mere ownership of machines by a foreign company does not lead to taxes on it to promote manufacturing of electronic goods in India.
Market researchers interviewed by Reuters speculate that the move could prompt Apple and other companies to invest rapidly in the electronics manufacturing space. As now they can take over initial expenses for pricey machines and reduce the initial cost burden on contract manufacturers they partner with.
“We are saying that if you bring your machine, and that machine is used by a local manufacturer to produce something, we will … exempt you for 5 years. We are giving them certainty,” Revenue Secretary Arvind Shrivastava said at a post-budget press conference.
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Smartphone manufacturing and broader manufacturing of electronic goods is a key plank of Prime Minister Narendra Modi’s agenda for economic growth. The rule change will apply until the 2030-31 tax year and only to factories set up in select customs-bonded areas.
“This exemption removes a key deal-breaking risk for electronics manufacturing in India,” Shankey Agrawal, a partner at Indian tax-focussed law firm BMR Legal told Reuters. “The result is faster scale-up and greater confidence for global electronics players to manufacture in India.”
Apple held many discussions with Indian officials in recent months to tweak the law as it feared the legislation could hamper its future growth, Reuters has reported.
The earlier rules did not affect Apple’s South Korean rival Samsung as almost all of its phones are made in its own Indian factories, and not by contract manufacturers.