Apple Inc. has asked India to defer a planned increase in import taxes on mobile phone parts so it can expand its iPhone manufacturing in the country, but the government is unlikely to accede, people familiar with the matter said.
The U.S. company has been in talks with Indian officials for months, seeking “pre-requisites” — government tax breaks and incentives — for expanding its operations in one of the world’s fastest-growing smartphone markets.
During those talks, Apple has conveyed it wants India to defer an existing policy that plans to levy taxes on more imported mobile components in line with Prime Minister Narendra Modi’s ‘Make in India’ drive to boost domestic manufacturing. While India’s government has been keen to get Apple to manufacture in India as a showpiece investment, it has told the U.S. firm there would be no policy exemptions, so there will be no tax breaks on parts imports, the people said.
Indigenisation vs import
“Apple wants duty-free imports of components. India wants indigenisation,” said one person with direct knowledge of the talks.
Apple has expressed willingness to increase local value addition over time, but has stuck to its demand for immediate import tax relief, the person added.
Apple declined to comment, and there was no response from either the PMO or the Ministry of Electronics and Information Technology, which is trying to help build an electronics manufacturing base.
The disagreement could be a stumbling block, and risks delaying Apple’s plans to penetrate the Indian market, where it currently just assembles its iPhone SE model.
Despite a boom in smartphone sales in India, Apple’s market share is only about 2%.
Apple has demanded the tax relief as India still lacks an ideal ecosystem for parts makers to thrive. Counterpoint Research data shows that while more than three-quarters of smartphones sold in India are made locally, about 90% of the $14 billion worth of mobile components are imported.
To change that scenario, India imposes a 10% tax on imported components such as batteries, chargers and headsets.
Under a “phased manufacturing programme” (PMP), the government plans to extend the taxes to more components as a way of nudging parts makers to switch to more local production.
“It’s been a chicken-and-egg problem for component suppliers whether to set up manufacturing operations in India,” said Neil Shah, a director at Counterpoint.
“Apple and its partners will eventually have to comply, otherwise Apple will always price its products at a premium.”
