ACMA seeks restoration of weighted deduction of 200% on R&D expenditure in Budget

The Automotive Component Manufacturers Association of India (ACMA), the apex body of the Indian auto component industry, in its recommendations to the government for the forthcoming Union Budget for the year 2017-18, has stressed on an urgent need to increase the rate of weighted deduction on R&D spend as also to keep auto components at 18 percent rate in the Goods and Service Tax (GST).

Commenting on the auto component sector’s expectations of the forthcoming Budget, Rattan Kapur, president, ACMA, said, “We anticipate the forthcoming Union Budget to uplift market sentiments which will allow for growth and development of the domestic auto components sector. Achieving world-class quality and new product development will only be possible in the auto component industry by enhancing spend on R&D and creating relevant infrastructure for innovation.

“With significant changes in emission and safety regulations, it is imperative for the component industry to enhance its R&D expenditure. It is, therefore, critical that the earlier weighted deduction of 200 percent on R&D expenditure be immediately restored. That apart, while we are eagerly awaiting the announcement of GST implementation, it critical that the GST rate on auto components is low and a reasonable transition period is extended to the industry to effectively adapt to the changes in the taxation environment”.

ACMA RECOMMENDATIONS FOR THE UNION BUDGET FY2017-18

Lower GST rate: A higher GST rate could adversely impact the component industry, especially the aftermarket which continues to suffer due to issues of counterfeiting / fake / substandard / imported parts. Auto components, says ACMA, should therefore be kept at the lower rate of 18 percent rather than the 28 percent higher rate.

Adequate transition time for MSMEs to adopt GST: MSMEs may find immediate implementation and necessary compliance to GST an impediment. Thus, a transition period of one to two years be given to the MSME sector to understand the provisions of the law and meet necessary compliance norms. Creating a single-window GSTN helpdesk for MSMEs would be beneficial. 

Eliminate/reduce customs duty on alloy steel and secondary aluminium alloy: ACMA has called for elimination and/or reduction of customs duty on alloy steel, mild steel, aluminium alloy, secondary aluminium alloy, and copper wire. Customs duty on these raw materials is higher than that on finished auto components due to Trade Agreements and Antidumping/Safeguard duty. There is an urgent need to address this anomaly, says ACMA.

DIRECT TAX:

Depreciation Rate: The current depreciation rate of 15% does not assist auto companies in meeting the objective of timely accumulation of funds for replacement of assets. The rate should be increased to at least 25% and to 40% for domestically manufactured capital goods to encourage local manufacturing. 

Research & Development: Recent regulatory changes in emission and safety norms call for enhanced spend on R&D by the auto component industry. It is, therefore, recommended that the rate of weighted deduction be restored to the enhanced rate of 200 percent. Weighted deduction should also be extended to R&D outsourced to third-party service providers/other institutions. Spend on roads constructed for test tracks and prototype development should also qualify for such R&D benefits.