Saturday, August 29, 2015

Corporate Tax Refunds


Renault-Nissan India is reported to have put on hold its plans to invest up to ₹ 5000 Cr on hold, subject to "expeditious payment of outstanding incentives".

What are the outstanding incentives?

In India states often compete with each other to attract investment, especially FDI. Tamil Nadu, along with Maharashtra, Gujarat and Haryana figure amongst the top states offering special sops to companies looking for a base in India.

As a part of its "Investment Promotion Subsidy (IPS)" package, TN had promised to provide a refund of gross Value Added Tax (VAT) and Central Sales Tax (CST) paid by companies investing in the state. In 2005, Renault-Nissan entered India and set up its manufacturng plant in Chennai after investing over ₹ 6,100 Crores. uilding a plant that can roll out 400,000 vehicles a year.

Renault-Nissan claims that it yet to receive a refund of ₹1,901 Cr and ₹ 822 Cr for IPS and input VAT respectively.

An absence of clarity on taxation is often cited as one of the key reasons why investors shy away from India. For those who have already taken a plunge into the Indian market, a commitent provided by a state governent acts as a buffer against abiguous central taxations rules. And when state government are perceived to dishonor their commitments, national credibility takes a beating.

Are things really as simple as they are reported in the papers? On the face of it it does seem rather improbable that TN would kill the proverbial goose that lays golden eggs of employent and tax revenue. So what is the other side of the coin?

A few relevant points:

  • Under TNs Ultra Mega Integrated Automobiles Projects Policy (UMIAPP-2007), an investment of at least ₹ 4,000 crore is required within seven years from the date of signing an agreement with the government or any other specified date. 
  • Apart fro Renault-Nissan, other auto majors have also invested in TN, including Hyundai Motor India Ltd (cap-ex to 600,000 cars), JV - Nissan and Ashok Leyland Ltd ( 300,000 commercial vehicles) and Ford India Pvt. Ltd.
Now the question to ask is:Did Renault-Nissan honor its side of the bargain? and does any other auto company have the same set of complaints against the TN government?


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LINKS

* Renault Nissan puts on hold ₹5k india plan - http://www.hindustantimes.com/business-news/renault-nissan-puts-on-hold-rs-5-000-cr-india-plan/article1-1385302.aspx

* Wiki - https://en.wikipedia.org/wiki/Renault_Nissan_Automotive_India_Private_Limited

* (2009) - http://www.livemint.com/Companies/vKc5vvbok5WnSYvyhAo8WK/Renault-Nissan-to-make-good-shortfall-for-Chennai-facility.html
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