India Development News & Foreign Investment Opportunities

FIEO’s Wish List seeks 200% Tax Deduction for R&D

Safar calls for export development fund


Safar calls for export development fund



The Federation of Indian Export Organizations (FIEO) has urged the Government to provide a 200% tax deduction for Research and Development (R&D) investment and product innovation as the sector face long gestation activity with uncertainty.

R&D and product innovation are integral part of sustained exports. Unfortunately, India’s R&D spending is considerably low when compared to South Korea, Israel, Scandian countries, China, US among others, said FIEO President Sharad Kumar Safar on 2 July 2019.

R&D tax support topped the FIEO’s wish list for the Union Budget to chart higher growth trajectory for exports.

It has also called for reduction in corporate tax.

Foreign Direct Investment (FDI) inflows have soften up in recent times emanating from global uncertainties, he noted.

FDI may be encouraged so as to bring technology and develop cluster based MSMEs in hub and spoke model. The reduction in corporate tax would be a step in that direction particularly when companies in US and China, facing the heat of tariff war, are looking for investment in India so as to produce both for domestic consumption and exports.

Corporate tax has already been reduced to 25% for businesses having turnover up to Rs.250 crore.

The corporate tax reduction may be extended to all entities particularly as it will attract FDI also more so in view of the fact that US has reduced corporate tax from 35% to 21% in 2018 (Combined rate from 38.9 to 25.7%).

FIEO also wants a fillip domestic manufacturing.

The budget should encourage domestic manufacturing focusing on imports substitution as well. On Customs front, the instances of inverted duty structure needs to be looked into.

More importantly, the end-use exemption for the domestic industry on inputs required for manufacturing of products imported through FTAs route should be given forthwith to push domestic manufacturing and imports substitution.

Striking a balance between duty free import of technology and level playing field to domestic capital goods industry is a tricky issue, FIEO noted.

However, the budget should look into reducing customs duty on capital goods which are not produced in the country so as to do justice with both entrepreneurs as well as domestic capital goods industry.

For MSME exporters, marketing and showcasing of their products require substantial expenditure. The current support extended through various scheme is grossly inadequate.

“We require an export development fund with a corpus of 0.5% of export value so that MSMEs aggressively participates in international exhibitions and trade shows,” said Saraf.

Creation of employment is the biggest challenge faced by the country.

“If we have to reap demographic dividends, we have to provide jobs to millions who are seeking the same on month-on-month basis. We would urge the Government to provide income tax relief to units which provide additional employment in export sector,” he said.

Such a Scheme will also help the workers to move from informal employment to formal employment, which is a priority of the Government. Incentives may be provided based on twin criteria of incremental growth in exports and incremental growth in workers so that while on the one hand exports is increased, on the other, the employment intensive units also get a boost.

On other option, FIEO has called for investment linked tax deductions so that units are encouraged to go for expansion helping exports and job creation.

It also wants Tax Deduction on Export Marketing Expenses etc.

Indian exports suffer from numerous disabilities including infrastructure bottlenecks, high transaction cost, high cost of credit, etc.

The cost of overseas marketing including market survey, market entry, promotions, road shows, participation in trade fairs/exhibitions is also very high.

To encourage companies to invest in exports marketing for expanding exports as well as better unit realization, the budget should provide 150% weighted deductions on the expenditure incurred on exports marketing.

Singapore has a “Market Readiness Assistance” (MRA) grant for companies with less than S$100 million annually for marketing related expenses. The MRA grant offers funding equal to 70% of the cost on such activities to encourage companies to go for overseas marketing/exports, the FIEO has pointed out.

The share of exports in country’s GDP has declined in last few years. If GDP has to grow at 8% plus, Exports should grow at 15% plus. The Department of Commerce should be given enough budget allocation to support exports including agri products which has come in focus only recently, said FIEO.

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