What will be the impact of govt's decision to give into Apple's tax concessions demand?

Key highlights:

• Government has allowed Apple to import mobile handset parts for local manufacturing tax free
• Apple will be subject to the condition of increasing local value addition over time
• Apple has sought include a 15-years tax holiday for import of components

In a relief for Apple, the government seems to have finally succeeded in getting one of the tax concessions it has was seeking in order to assemble iPhone in India. The government has allowed Apple to import mobile handset parts for local manufacturing tax free, according to a Reuters report quoting a top government official.

However, the tax concessions granted by the government to Apple will be subject to the condition of increasing local value addition over a period of time.

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The company has looking to manufacture iPhone's in India but has been pushing for the Indian government to offer it several tax concessions to import its equipment and parts into the country for its assembly.

Among the tax concessions Apple has sought include a 15-years tax holiday for all components that it would import for setting up a manufacturing facility in India.

This was however rejected by a panel of ministries and offered a phased programme to increase the share of local production in the manufacturing, Arun Sundararajan, Secretary at the Ministry of Electronics and IT, told Reuters.

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“We have offered them tax exemptions on those components which could not be manufactured in India,” Sundararajan told Reuters and added that local manufacturing component would have to be increased gradually.

However, it looks like the government has conceded to Apple's demand to import its parts rather than source it locally.

The government had earlier maintained its stance on the 30% local sourcing norm, where Apple would have to source 30% of its smartphone parts from local vendors in order to promote local manufacturing the country.

While the government intends for Apple to increase the local share in production of iPhones in a phased manner over a period of time, it remains to be seen if the company will do the same.

Already there was a difference between the plans of Apple and the government, though the company has agreed to increase local share in production over a period of time.

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Apple has been pushing the government to bent its rules for the company to setup in India. The company's executives have met with government officials several times since last year. Even CEO Tim Cook visited India last year and met with Prime Minister Narendra Modi to push their agenda.

The Indian government wants Apple to raise the share of local production in phases of 3 year, 5 years, 7 years and 10 years.

The report says that the industry estimates the phased manufacturing programme could increase local value addition in mobile phones manufacturing to 40-50% in the next three years. The total value estimated of mobile phones in India is expected to touch around Rs 90,000 crore in comparison to Rs 54,000 crore last year.

While government has given Apple the tax cuts for the import of iPhone parts, the big question is will it allow others to do the same. Many other smartphone manufactures will also look for these same concessions for importing parts from China and other countries. This could pose a threat to local manufacturing in India overall.

Besides this, another troubling part about this is that Apple has been looking to sell refurbished iPhones in India. While the government has disagreed to it, this could pave way for it to change its stance on the following in the future.