As GST will subsume all state taxes, retention of the duty differential becomes key for Foxconn to survive, expand in India.
Taiwanese phone maker Foxconn’s plans to take over the shuttered Nokia factory near Chennai rest on a taxstructure as India moves into the GST regime. Foxconn had shut its India plant near Chennai after Nokia exited the business of making phones in late 2014 following a large tax demand.
Its second innings had begun with a promise to start 10-12 factories across the country with an investment chest of Rs 12,000 crore ($2 billion). However, its comeback was through a small factory in Andhra Pradesh’s Sri City Special Economic Zone.
Producing for a range of Chinese brands like Xiaomi, Foxconn’s return coincided with a new tax structure that favoured foreign contract manufacturers to make locally instead of importing completely built units into India.
Now, at its seminal point of its second entry through taking over a now-defunct Nokia Chennai plant, Foxconn is faced with a gnawing uncertainty over whether the duty differential dispensation will exist at all in the GST regime.
In a proposal accessed by ET, Pankaj Mohindroo, president, Fast Track Task Force, wrote to the Department of Electronics and IT (DeitY) in August, saying: “The duty differential dispensation remains at the heart of the current momentum in mobile handsets and components’ manufacturing…”
GST and Foxconn
In last year’s budget, the centre imposed a 12.5% countervailing duty on mobile phones that would be imported, strengthening the case of global corporations like Foxconn to set shop in India to serve the Indian market.
Since the Goods and Services Tax (GST) will subsume all state taxes such as the value-added tax -for which manufacturers can claim exemptions -retention of the duty differential becomes key for Foxconn to survive and expand in India.
In the one year after the centre incentivised domestic manufacturing, about 35 smartphone factories and 15 component manufacturers have set up shop, creating 50,000 jobs.
All about the deal
An official aware of developments connected to Foxconn said: “The Nokia factory deal is four-way the centre, the state, Nokia and Foxconn at four corners, with all of them having something to contribute to the deal.”
“From the centre’s part, all the tax concessions that triggered local manufacturing need to remain. Otherwise, it really is going to spoil the deal for Foxconn -not just for the Nokia plant but for the entire industry,” the official added.
Sources aware of the Nokia-Foxconn negotiations say that currently, negotiations are taking place on the sops that Tamil Nadu is willing to offer and the valuations of the 212 acre factory that was shut for over two years.
Queries on the issue sent by ET to Foxconn remain unanswered.
Tamil Nadu government officials maintain that the state government is aware of Foxconn angling for the takeover and is liaising with the Centre to making it happen.
The Union government’s Make in India campaign seeks to grab a portion of foreign investments flowing into China for the country’s cheap electronics manufacturing prowess.
The tax advantage has been seen pivotal to this effort.
Tax experts, however, believe that the coming of the GST will only help India gain an edge against China in the exports market.
Sachin Menon, head of indirect tax, KPMG, said: “With the goods and service tax proposing to refund entire input taxes, as opposed to partial refund of input taxes under the current regime, it will help India to be competitive even in the export market.”