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India's tax regime complex, throws up 'unexpected surprises': Micron

Micron Technology has urged the central government to reconsider taxation for the electronics sector


BS Web Team New Delhi

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Micron Technology, a $30 billion US-based semiconductor manufacturer, has expressed concerns about India's tax structure, claiming that it throws up "unexpected surprises", Financial Express reported.

The company has urged the government to reconsider taxation for the electronics sector, stating that recent changes in the taxation regime have created a "cloud of uncertainty" with regard to the cost of doing business.

The statement made by Gursharan Singh, senior vice-president, global assembly and test, Micron Semiconductor Asia Operations, is significant as the company is a front-runner to participate in the government’s $10-billion domestic semiconductor manufacturing scheme.

He made the remarks last week at the India-US Initiative on Critical and Emerging Technologies (iCET) dialogue.

The iCET dialogue, which India and the US launched in January in Washington, covers a wide range of critical and emerging technology areas, including semiconductor supply chains, defence, space, telecommunications, artificial intelligence, and quantum technologies.

Micron has proposed a $2 billion investment in the country to establish an Outsourced Semiconductor Assembly and Test (OSAT) unit with four assembly lines. This is the first investment proposal for an OSAT unit under the government's $10 billion incentive programme for domestic semiconductor manufacturing, announced in December 2021.

Micron's complaint concerns a change to Section 65A of the Customs Tariffs Act included in this year's Finance Bill.

As part of the amendment, the government removed the integrated goods and services tax (IGST) exemption on inputs imported by a duty-free bonded warehouse for export production.

Under the Customs Bonded Warehouses or MOOWR Scheme (manufacturing and other operations in a customs bonded warehouse), manufacturers import components that are used for domestic production for export purposes. These components are stored in warehouses. These imports are exempt from import duties and other taxes. However, the government imposed an 18 per cent IGST on such imports in this year's finance bill. The IGST is levied on interstate sales of goods and services.

According to analysts, this will have a negative impact not only on domestic semiconductor manufacturing but also on other production-related incentive schemes such as IT hardware and smartphones. Components for such electronics or related manufacturing are imported and stored in warehouses.  

The amendment will further raise the cost of doing business for domestic manufacturers and reduce their export potential. The companies concerned will now be subject to 18 per cent IGST, with refunds possible over several years.

The goal of MOOWR scheme was to lower the cost of capital while maintaining the availability of working capital in order to promote domestic manufacturing. The scheme was revamped in 2019 to facilitate Make in India and was brought up to speed with other export promotion schemes such as special economic zones, export-oriented units, advance authorisation schemes and export promotion capital goods schemes.

According to industry executives, while these schemes continue to have IGST exemption, it has been removed in the MOOWR scheme.

They also stated that the certainty of tax exemptions had prompted several companies in the electronics manufacturing sector to relocate their operations to the MOOWR scheme from the Special Economic Zone (SEZ), Export Oriented Units (EOU), and Export Promotion Capital Goods (EPCG)  schemes.

Micron's concerns about the taxation regime come at a time when the government has reopened the window for inviting new applications in order to get proposals from global semiconductor majors. Unlike the first instance, when the application window was only open for 45 days, this time it will be open until December 2024.

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First Published: Jun 19 2023 | 7:12 PM IST

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