Multinational mobile phone-makers that have set up factories in Sriperumbudur, Tamil Nadu have sought the intervention of Chief Minister J. Jayalalithaa in getting a refund of some Rs 500 crore from the State tax department.
The refund, in the form of Value Added Tax paid by the manufacturers since 2006, is part of an agreement the phone companies signed with the State Government at the time of investing in the State.
“Request your immediate help in the rescue of mobile and electronics industry in Sriperumbudur. Large VAT refunds blocked for 3-6 years. Matter serious with huge currency fluctuations and China-Vietnam competition eroding FDI viability of electronic manufacturing in India,” said a telegram faxed by the Indian Cellular Association (ICA) to Jayalalithaa. ICA is the industry body representing the interest of mobile phone-makers including Nokia, Motorola and Samsung.
Thin margins
The matter of due refund has been hanging fire for a long time.
In some cases the manufacturers have not received a single paisa in VAT refund since inception.
The problem is that phone-makers work with very thin margins, especially in the low-end segment.
“The industry calculations on the expected VAT refund under the Memoranda of Understanding signed with the State Government have gone wrong as the promises have not been kept. Sentiment is at an all-time low,” said Pankaj Mohindroo, President, ICA in a communication to K. Shanmugam, Principal Secretary-Finance Department, Tamil Nadu Government.
Policy issue
The VAT refund issue adds to the woes of the phone-makers who have invested millions of dollars in setting up assembly lines in Sriperumbudur since 2005-06.
Nokia’s factory, for instance, is the Finish phone-maker’s biggest, offering employment to over 11,000 workers.
But issues related to infrastructure and withholding of promised tax breaks have made the phone-makers bitter.
“The delay in promised refund of VAT to this industry is eroding confidence in India,” the ICA said.