Apple or no Apple

Govt must stick to a rule-based regime

Apple Inc wants tax relief from the Indian government for its proposed manufacturing facilities in the country. India is important for Apple because the country is the world’s fastest growing market for mobile phones even as growth has slowed in markets such as China. Apple is a small player in India right now, with a market share of around two per cent but, with rising disposable incomes in the economy, it sees a big market for its products in the near future. During his last visit to India, Tim Cook, Apple’s chief executive officer, had said that India would be the next big market for the company. And towards that end, Apple wants one of its vendors to put up a production unit, possibly near Bengaluru. There are reports of a possible second plant in Gurugram later. But in lieu of setting up a plant in India, Apple has sought several concessions from the government, such as relaxation in labelling rules (so that it does not have to print product information on its devices), and lower import and manufacturing duties. It also wants a commitment that these concessions will continue even after the goods and services tax regime, which will subsume all indirect taxes, is rolled out later in the year.

What is happening now is not new. In June last year, Apple had sought relief from the rule that a foreign company that wants to set up its own retail stores in the country (single-brand retail) must source at least 30 per cent of its produce locally. The government had said that companies that brought in cutting-edge and state-of-the-art technology would be exempt from this rule for a period of three years. Apple had argued that its products were high-tech and it sought an exemption in perpetuity. The government rightly turned down the demand.

It cannot be denied that Apple, the maker of iPhones and iPads, is a marquee investment to bag and that its presence in India will boost mobile-phone manufacturing in the country. Still, the government must not accede to its latest demands. That is because doing so would be grossly unfair to those who have already made investments and received no such concessions in the past. It will create an uneven playing field, which will do long-term damage to India’s reputation as an investment destination. Besides, it will become difficult for the government to deny these concessions to other prospective investors. 

What is required is an unambiguous rule-based regime where there is no space for discretionary favours. Fortunately, recent news reports suggest that the government is in no mood to make an exception for Apple, though the matter is being discussed in the ministries of finance, industry and information technology and a final decision is awaited. However, a case can be made for exemptions if a company commits large investments and promises substantial jobs. Again, such an exemption should be available to all and not a chosen few. Thus, if an existing investor wants to scale up its unit to a certain level, it should  also be entitled to lower taxes. The rules have to be transparent and clearly worded. So long as there is ambiguity and opacity, companies will continue to make such demands. All discretion on such matters in the hands of bureaucrats must be ended.