Auto Component Makers Expect A Growth Oriented Budget

With an aim to cross the USD 100 billion mark and to have at least 5 Indian suppliers amongst top-global 100 by 2020, the Automotive Component Manufacturers Association (ACMA), the apex body for the Indian auto component industry has submitted its recommendations to the Government for the forthcoming Union Budget for the year 2015-16. The auto component body is looking forward for support from the government to revive the industry and to realise their ambition of growing exports to USD 35 - 40 billion and build overseas revenues of USD 20-22 billion over the next five years. The industry clocked a turnover of USD 35 billion in 2013-14 with exports of over USD 10.2 billion.

Commenting on the Auto Component Sector's expectations of the forthcoming Budget, Mr. Ramesh Suri, President ACMA, said, "The clarion call to 'Make in India' by Hon'ble Prime Minister Mr Modi which is designed to facilitate investments, foster innovation, enhance skill development, protect intellectual property and build best in class manufacturing infrastructure in the country could not be more timely; it has enthused the entire manufacturing industry. We expect the forthcoming budget to lead to creation of a favourable and stable policy environment to boost industrial revival and enable growth in domestic auto sector."

The last fiscal was one of the most challenging times for the auto sector in India. Factors like high capitcal cost, high interest rates, flucutating exchange parity, flagging vehicle sales, slowing down of investment and infrastructure challenges had adverse impact on the growth of the auto component industry.

Some of ACMA's salient recommendations to the Government are:

- Continuation of 10% Excise duty on Auto Components

ACMA has recommend continuing of the excise duty rate of 10%, which was valid only till December 31, 2014.

- Early Implementation of GST / Phasing out CST

There is an urgent need to reduce multiplicity and complexity of applicable taxes through early implementation of GST. Further, till such time the GST is implemented, CST be reduced to 1% from existing 2%.

- Elimination of Customs Duty on Alloy Steel, Mild Steel, Aluminium Alloy and Secondary Aluminium Alloy

Domestic Steel / Aluminium Alloy suppliers benchmark their prices based on the landed prices. This makes the inputs expensive for the domestic component manufacturers. Further, due to various trade agreements, auto components are facing reduced customs tariffs in comparison to the basic raw materials needed for their manufacture; this has resulted in inverted tariff structure in some of the cases. Elimination of customs duty on the raw material will therefore set right the equation.

- Allowing Input Credit on Diesel

Due to power shortage manufacturers have to resort to generating their own power though gen-sets thus increasing the cost of production. ACMA has recommended that such manufacturers be allowed to avail input credit on diesel procured for internal power generation.

- Service Tax - Credit on various Services should be provided

Services like canteen, transportation of employees, repair and maintenance of commercial vehicles etc. are directly related to manufacturing, therefore manufacturing units should be allowed to avail Cenvat credit on such services.

Direct Tax:

- Encouraging Research & Development

Presently 200% weighted deduction under section 35(2AB) of the Act is available for in-House R&D facility and 175% weighted deduction on outsourced R&D from approved Institutions i.e National Laboratories, Universities, Scientific Research Institutes and IITs.

The 200% weighted deduction should be extended to R&D facilities, which are outsourced to Third-Party service providers or other institutions. Furthermore, the amount of weighted deduction under Section 35(2AB) maybe allowed when computing tax under 115JB. This will alleviate accumulation of MAT credit.

- Enhancing Depreciation Rate on Capital Goods

The current depreciation rate on Capital Goods should be enhanced to 25% from 15%. Further, domestically manufactured capital goods be allowed 40% Depreciation. This will encourage Capital investment in the industry.