ACMA’s FY’15 Budget wish-list calls for bigger government play

With the Union Budget 2015 less than a month away (expected date: July 10), the Automotive Component Manufacturers Association (ACMA) has put forth its wish-list from the new government.
The association, through its recommendations for changes indirect and direct taxes, is pushing for measures that will give a fillip to industrial revival and in turn drive growth for component suppliers. Depressed vehicle sales over the past year, along with currency fluctuations in currency, high inflation and increasing interest rates, have put suppliers under considerable pressure.
Expecting a positive response from the upcoming Budget, Harish Lakshman, president, ACMA said, “The automotive industry is one of the key drivers of the Indian economy, which is currently experiencing an unprecedented downturn. It is, therefore, critical that focussed attention be given for stimulation of the automotive industry.”

Indirect Tax:

• Retain the 10 percent excise duty on auto components on chapter 84 and 85 items, which is currently valid till June 30, 2014.
• Eliminate customs duty on alloy steel, mild steel, aluminium alloy and secondary aluminium alloy. ACMA says domestic steel / aluminium alloy suppliers benchmark their prices based on the landed prices, which makes the inputs expensive for domestic component makers. Also due to trade agreements, auto parts face reduced customs tariffs compared to the basic raw materials needed for their manufacture. This has resulted in an inverted tariff structure in some cases and elimination of customs duty on the raw material will set right the equation.
• Allow input credit on diesel to help manufacturers who generate their own
power though gen-sets to offset shortage of power.
• Increase existing 50 percent Cenvat credit on capital goods to 100 percent in year of purchase to encourage investment.
• Provide service tax credit on various services (like canteen, transportation of employees, repair and maintenance of commercial vehicles) directly related to manufacturing.
• Early implementation of GST to reduce multiplicity and complexity of taxes. And till GST is implemented, reduce CST to 1 percent from the existing 2 percent.

Direct Tax:

• Encourage R&D by extending 200 percent weighted deduction (allowed for in-house R&D facility and 175 percent weighted deduction on outsourced R&D from approved institutions) to R&D facilities outsourced to third-party service providers or other institutions.

• Increase depreciation rate on capital goods from 15 to 25 percent and allow 40 percent depreciation to domestically manufactured capital goods to encourage capex in the industry.

Photograph: FAG Bearings India’s manufacturing line at the Savli, Gujarat plant.