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Finance Minister Nirmala Sitharaman announced that new companies manufacturing parts and components for electric vehicles are likely to benefit from reduced corporate taxes. Manufacturing companies established after 1 October 2019 would have to pay 17.16 percent as corporate tax, as compared to the 21.55 per cent currently being paid.
The Finance Ministry expects these steps to drive domestic production for charging equipment, lithium-ion batteries, electronic and electrical parts, while other parts like airbags, inflators and sensors may continue to be imported.
Electronic content installed per car has been increasing every year, and the new tax concessions may drive localization for electronic components used in vehicles. As is, most electrical and electronic parts for vehicles are imported.
Manufacturers have started increasing localization of products in the country, and the new tax slabs will help usher in newer companies. The Ministry hopes this will boost the auto industry and its ancillary supply chain, both of which account for 49 per cent of India's manufacturing GDP.
Tax incentives would also attract investments in industries involved with production of lithium-ion batteries, charging equipment, and power electronics. The Ministry wants more domestic players than global ones that are currently mapping the Indian auto markets.
The country's largest carmaker, Maruti Suzuki, imports key electronic components for their vehicles. The company supports the reduction in taxes, and hopes that this move will attract manufacturers to build quality electronic components, helping more localization of products across the auto industry.
Thoughts About The Reduction In Taxes
Kudos to the government for doing whatever they can to help boost the entire auto industry. More manufacturing and localization will also help create more jobs and help boost the economy. Localization of vehicles also helps manufacturers price vehicles very competitively, enabling more money to be spent by customers. This leads to a healthier economy. However, we wonder if they're making the actual process of firing up a manufacturing company easy and bribe free.
While we're happy about taxes being reduced to bring more domestic power to the auto ancillary industry, we also expect prices of things unrelated to auto to increase by a small margin. The government truly lives up to the "borrow from Jack to pay John" philosophy.