India Tax Workshop Strategic Tax Incentives September 2014

Transcription

1 India Tax Workshop 2014 Strategic Tax Incentives September 2014

2 Transforming India Tax as a growth catalyst Type of Investor 01 and Incentives

3 Incentives Available to Investors across States MSME investors Large investors Mega investors Ultra Mega investors Fiscal Incentives Non Fiscal Incentives Key fiscal/financial incentives VAT refund / Interest free loan Electricity Duty Exemption on stamp duty Entry Tax exemption Interest subsidy Capital/Investment Subsidy Power Subsidy The extent and process of claiming incentives vary from state to state Incentives Ensuring availability of Land, water & power Dedicated power feeders for large units or industrials areas Common effluent treatment plant for industrial estates/areas/clusters Vendor Development Initiatives Patent and quality certifications Technology adoption and upgrade programs Cluster development incentives and initiatives Most of the states also offer customized package of incentives beyond a threshold level of investment and employment generation. *Category of investors will depend on the size of the investment Page 3 India India Tax Tax Workshop Workshop

4 What does the government look for Direct revenues through state taxes (VAT, CST) Priorities for Finance Department Incentives claimed by investors Net financial impact on state Employment created Priorities for Industries Department Investment Amount Impact on local industry Opportunities for ancilarization Requirement of Land Priorities for support departments Water requirement Power requirement Impact on Environment Page 4 India India Tax Tax Workshop Workshop

5 Important Incentive Negotiation Points 1 Preparation of 2 Initiate discussions 3 Proposal Locational and incentives comparison/ benefits analysis of various states 6 Disbursement of 5 Incentives Various categories of incentives are disbursed by various agencies and through different processes Initiate discussions with Industries/ line Department regarding the project and desired incentives. Sign MoU/ EoI Negotiations with stakeholders The most important stakeholders from this aspect are: Industries Department Single Window Agency Finance department Line department Cabinet (in case of very high incentives) 4 Stakeholder engagement Will depend on the size of investment (like District Industries Center/ Single Window Agency) Company needs to make an application with the state single window agency for in-principle approval Application for Incentives Prepare a compelling proposition for the government All major incentives are referred to finance department Government have become very particular about the incentives Compelling Proposition What are the benefits to the state in terms of: Tax revenue Employment Generated (local) Ancilarization opportunities Mfg Value Add (MVA) Contribution to Export from State How important the project is from the industry value chain point of view Strategic/ regional Importance of the project (leading to Branding Advantage) Page 5 India India Tax Tax Workshop Workshop

6 Snap Shot Of Incentives Covered Under Various Industrial Policies* Incentives\ States Kar. TN MH Gujarat AP I. Key Incentives Stamp duty exemptions a a a a a Interest subsidy a a a a VAT/CST/SGST exemptions a a a a Capital investment subsidies a a a a a II. Other Incentives A. Infrastructure Land a a a Electricity/Power a a a a a B. Research and Development Patent and quality certification a a a a Technology development and upgrade a a a a C. Human Resource Development Skill development and employment subsidy a a a a D. Other Cleaner production measures a a a a a Quality certifications a a a a *Karnataka Industrial Policy ; Tamil Nadu Industrial Policy 2014; Maharashtra Industrial Policy 2013; Gujarat Industrial Policy 2009; Andhra Pradesh Industrial Investment Promotion Policy (IIPP) Page Page India Tax Workshop India Tax Workshop 2014

7 Transforming India Tax as a growth catalyst 02 State level incentives

8 Specific incentives state level Greenfield manufacturing projects, substantial expansion/ diversification Benefits depend on the size of eligible investment, location, employment generation, nature of products, social impact & secondary economic benefits etc States such as Maharashtra, Andhra Pradesh, Tamil Nadu, Madhya Pradesh, Uttar Pradesh, etc providing various incentives Customized incentives for mega projects or investment in backward areas based on negotiations with relevant state governments Incentives vary across states depending on their respective industrial policies Land related Stamp duty waiver/concessions Other concessions on registration charges, property taxes, conversion charges, etc Single-window clearance Infrastructure Electricity duty exemption Rebates in tariffs for electricity/water/gas Subsidies on clean manufacturing technology, pollution control, etc Capital investment & employment VAT/CST-linked subsidies/soft loan/exemption Exemption or refund of entry taxes Subsidies linked to PF/ ESI contributions Other subsidies (technology, transport, etc) Page 8 India Tax Workshop 2014

9 Maharashtra Package Scheme of Incentives Package Scheme of Incentives (PSI) a key component of State Industrial Policy since over 2 decades to promote industrialization and employment creation Different incentives for investment in MSMEs, Large Scale Industries (LSI) and Mega Projects, based on location category, investment size and/ or employment generation Revived focus on LSI projects (investments upto ~ INR 100 cr to 500 cr, depending on location category) LSI incentives PSI 2007 PSI 2013 Industrial Promotion Subsidy (IPS) 1) Ceiling as % of Fixed Capital Investment 2) Number of years for utilization 3) Quantum of IPS every year Between 20% to 35% Between 5-8 years 25% of the relevant taxes paid Between 30% to 80% 7 years Between 60% to 100% of (VAT minus ITC)+CST payable Exemption from Electricity duty (for new units in Group C, D and D+ areas & No Industry Districts) 100% exemption for 15 years 100% exemption for 15 years Waiver of Stamp duty (units in C, D, D+ Talukas & No Industry Districts) 100% exemption 100% exemption Other incentives None Part reimbursement of costs such as water & energy audits, water conservation measures etc, upto max. total Rs 13 lakhs Page 9 India Tax Workshop 2014

10 Maharashtra Package Scheme of Incentives Customized package of incentives for Mega Projects (minimum eligible investment ~ INR 100 cr to 750 cr, depending on location category) and Ultra Mega Projects (minimum eligible investment Rs 1,500 cr) under PSI 2013 Top automobile cos. recently signed MOUs to invest a total of Rs 11,500 cr in Maharashtra As per news reports, Maharashtra Government made an exception to its policy of allowing IPS on net VAT basis for these ultra mega projects Thirty two (32) MOUs for Mega projects were signed by Maharashtra Government in February 2014 with investment commitments of more than Rs 23,850 cr Customized benefits to Mega projects under earlier PSI (2001/ 2007) included IPS equivalent to gross VAT/CST over years, subject to ceiling of 75% - 100% of eligible investment Electricity duty exemption Stamp duty exemption Entry tax/ Octroi exemption Priority and uninterrupted utilities supply at doorstep Single window clearance Page 10 India Tax Workshop 2014

11 Andhra Pradesh Industrial Investment Promotion Policy (IIPP) Different incentives for MSMEs, Large Scale Industries and Mega Projects, based on location category, investment size and/ or employment generation Customized package of incentives for Mega projects (ie with eligible investment > 250 cr) on case to case basis After the AP Telangna split, Union Government evaluating special incentives to new units in AP (Seemandhra region) Sector Investment (Rs Cr) Incentives granted (as per public domain information) FMCG MNC 275 in 3 phases 50% net VAT/CST reimbursement for 5 years 100% reimbursement of stamp duty Fixed power cost reimbursement at INR 0.75 per unit for 5 years FMCG MNC % net VAT/CST reimbursement for 5 years 100% reimbursement of stamp duty Fixed power cost reimbursement at INR 0.75 per unit for 5 years Beverage manufacturing MNC 1,230 50% net VAT/CST reimbursement upto 50% of eligible capex 100% reimbursement of stamp duty Fixed power cost reimbursement at INR 0.75 per unit for 5 years Steel Co. 1,270 50% net VAT/CST reimbursement for 5 years, upto 100% of eligible capex 100% reimbursement of stamp duty 25% subsidy on specific cleaner production Food processing MNC Page 11 2,500 in 4 phases 100% net VAT/CST reimbursement up to 50% of capital investment of the first INR 1,000 cr; up to 75% of capital investment on next INR 1,000 cr; up to 100% of capital investment over and above INR 2,000 cr; 100% reimbursement of stamp duty Fixed power cost reimbursement at INR 0.75 per unit for 5 years India Tax Workshop 2013

12 Electronics Background and objective: The Department of Electronics and Information Technology (DEITY) has notified Modified-Special Incentive Package Scheme (M-SIPS) under the National Policy on Electronics (NPE) 2012: Objective To transform India into a global hub for Electronic System Design and Manufacturing (ESDM) and to expand the manufacturing base of electronic products in India Key goals for 2020 to attract investment of INR 6,000 billion, enhance exports to INR 4,800 billion, achieve turnover of INR 24,000 billion Eligibility: M-SIPS Companies engaged in electronic manufacturing, including telecom, electronics, automotive electronics, consumer electronics players, looking to Investment in ESDM units being set up within notified areas Expansion of existing ESDM units set up within notified areas

13 Electronics Applicability of benefits prescribed conditions Incentives Capex Subsidy - 25% in non-sez/20% in SEZ Reimbursement of CVD/excise on capital equipment for non-sez units Reimbursement of central taxes and duties for 10 years in select high-tech units such as fabs, semiconductor logic and memory chips, LCD fabrication Subsidy/Incentive will be released after the end of the financial year in which the investment exceeds the minimum prescribed threshold Incentives available for 10 years from the date of approval of the project by DEITY State government incentives provided in addition to the mentioned incentives Benefits Financial incentive/subsidy for investments in ESDM units such as: New ESDM units Expansion of existing ESDM units Increase in capital investment in P&M of at least 25% For ESDM units set up within notified electronic manufacturing clusters Investments in eligible 29 verticals/categories of ESDM products, including: Electronics products, including nanoelectronics products and telecom products Intermediate goods, including semiconductor chip electronics manufacturing services Open for three years from the date of notification in the official Gazette of India, i.e., until 26 July 2015

14 Transforming India Tax as a growth catalyst Special Economic 03 Zones

15 SEZ Page 15 India Tax Workshop 2014

16 SEZ - The Story So Far. 565 Formal Approvals 177 yet to be notified 40 in-principle approvals 388 Notified SEZs 185 Operational SEZs Units 3,800 Investment INR 296 bn Exports INR 494 bn Employment 1.3 mn 203 yet to be operational Time to harness the potential across all sectors Page 16 India Tax Workshop 2014

17 Tax holiday Conditions SEZ unit SEZ developers Must be engaged in the export of goods and services from 1 April 2005 onward Must not be formed by splitting up or reconstructing an existing business Not to be formed by transferring a previously owned plant and machinery to the SEZ unit Should be involved in the development, operation and maintenance of SEZs, including their infrastructure facilities Book profits subject to MAT; nevertheless, MAT credit available for 10 years SEZ units eligible for a 15-year tax holiday (in a phased manner refer below table) Book profits subject to MAT; nevertheless, MAT credit is available for 10 years Developers eligible for a 10-year tax holiday out of 15 years from the year in which the particular SEZ is notified Deduction formula for SEZ = Profits of SEZ unit x [export turnover of unit/total turnover of unit] Quantum of deduction for the SEZ unit Period of deduction 100% of export profits First 5 years 50% of export profits Next 5 years 50% of export profits, provided that the profits are transferred to a Special Economic Zone Reinvestment Reserve Account for the purpose of acquiring plant or machinery within 3 years Next 5 years SEZ benefits (for the unit/developer) once expired cannot be renewed Page 17 India Tax Workshop 2014

18 More incentives for SEZ units Customs duty Customs duty exemption on goods imported for authorized operations Customs duty not payable on goods exported by a unit to any place outside India (though customs duty is payable on a sale to the DTA) No specific approval/license required for imports Excise duty Excise duty exemption on all goods brought from the DTA into an SEZ Unit to carry out authorized operations Goods manufactured by an SEZ unit not liable to excise duty (but clearances are subject to customs duty) Value-added tax VAT exemption on the purchase of goods within the state in most of the states Exemption from CST on the inter-state purchase of goods used for authorized operations Service tax Upfront exemption from service tax for services received by the SEZ for authorized operations Other services not exclusively used for authorized operations eligible for service tax refund, subject to conditions Output services provided by SEZ zero rated if services qualify as export of service States grant additional benefits such as stamp duty exemption, VAT exemption/ refund and electricity duty exemption Page 18

19 Opportunity - Manufacturing/Industrial Business Option 1: As a Developer Minimum land area for Sector specific SEZ reduced to 50 Hectares (25 Hectares in specified States) Sector includes various categories comprising their respective products or services which are similar or compatible with each other, including related ancillary services Option 2: As a SEZ unit Consider manufacturing companies with following business activities as their earnings in INR would be considered as deemed export for NFE: Supply of goods to projects financed by multilateral or bilateral agencies or notified funds Supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits the import of such goods at zero customs duty Supply of goods to the power projects, refineries and nuclear power projects Supply of Information Technology Agreement items and notified zero duty telecom or electronic items, as may be notified by the Central Government Also supplies to DTA would not be subject to customs duty where notifications provide for exemption Tax Savings on cost of project of approx 20% No requirement to export goods; Customs duty exemption possible on DTA sales Page 19

20 Opportunity Services Sector Option 1: As a Developer Minimum land area for Sector specific SEZ reduced to 50 Hectares (25 Hectares in specified States) Sector includes various categories comprising their respective products or services which are similar or compatible with each other, including related ancillary services No minimum area required for IT/ ITES/ hardware sector subject to minimum built-up area requirements Option 2: As a SEZ unit Set up SEZ unit for news business/ migrate existing business within the conditions prescribed under section 10AA. Review of utilisation of SEZ area Multiple units by downsizing existing SEZ Unit Need for consolidating/ migration of STPI and SEZ Units twin unit approach Operating 2 units of different companies in same space on multiple shift basis Review manpower utilisation in SEZ Aligning onshore service manpower to SEZ Align manpower growth from existing units to SEZ Tax Savings on cost of project of approx 20% Improves area utilisation Optimise operational costs Improve ETR Page 20 India Tax Workshop 2014

21 Thank you This Presentation provides certain general information existing as at the time of production. This Presentation does not purport to identify all the issues or developments pursuant to the transaction. Accordingly, this presentation should neither be regarded as comprehensive nor sufficient for the purposes of decision-making. EY LLP, does not undertake any legal liability for any of the contents in this presentation. The information provided is not, nor is it intended to be an advice on any matter and should not be relied on as such. Professional advice should be sought before taking action on any of the information contained in it. Without prior permission of EY LLP, this document may not be quoted in whole or in part or otherwise referred to in any documents.