IT Taskforce
Basic Background  Report
9th June 1998


 

IX IT PRODUCT MANUFACTURE

9.1 High-tech Parks

Large Technology Parks should be set up with special promotional provisions and incentives for manufacture of IT products.

Summary of the Concessions/Incentives sought for High Tech Parks

i) Exemption of Interest Tax under Section 10(15)(iv) to be amended to include high tech park megafabs.

ii) Income tax

a) for assessment purpose consider unsold units as business assets.

b) Income on such assets be assessed on actual accruals and not on notional basis.

c) Depreciation, repairs be taken on actual basis and not on notional basis

iii) Tax holiday under section 80 IA be extended to cover hightech parks.

iv) Business assets of hightech parks including residential units be exempted for wealth tax.

v) ECB guidelines should be relaxed further. The average tenor of the loan is stipulated as 7 years without any option for prepayment. This needs to be reduced to be an average tenor of 3 years with a provision for prepayment.

vi) Domestic banking system should be encouraged to finance approved hightech parks and not consider them as a real estate activity. It may consider loan at soft terms for this activity.

vii) Import concessions:

a) Import of captive power plant by hightech parks be allowed at the same rate as applicable to the power generation project(resulting in duty reduction from present 39.7% to 22%).

b) Import of infrastructural facility like data/communication networks being provided in the high tech park be allowed concessional rate of import duty for infrastructure.

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9.2 Chip Manufacture & Mega FAB

Efforts should be made to locate chip manufacturing facilities in India in collaboration with leading international partners.

The background:

1. The world IC industry is presently US $140 billion which is expected to grow to about US $ 270 billion by the turn of the country.

2. The Indian semiconductor production at present is about Rs.230 crores out of which IC production is about Rs.60 crores.

3. Given the electronic equipment target production of Rs.55,000 crore by the terminal year of the ninth plan, the optimistic market for ICs in India would work out to be Rs.8,000 crores. Keeping in mind the shortfall in equipment production, the lag of equipment designs, the tied ‘SKD’ assembly etc. the pessimistic accessible IC market in India is expected to be about Rs.3,500 crores.

4. India presently has some strategic capability but very little commercial capability in Ics.

5. There are chances for India to progress in IC area in Bipolar Analog Ics, Standard Logic ASICs, ASSPs etc. only if the present constraints of policy, tax regime, industry structure, finance costs, etc. are removed as recommended in the Report.

6. Global scale operations including exports are possible in India in back end operations like assembly and test, and design if the constraints are removed.

7. Fabs for basic products are possible only if Government removes constraints on inputs, creates infrastructure specially for this area and takes special initiative for attracting the multinational Joint-ventures. Modern fabs for advanced VLSI including exports would only be possible if multinationals are attracted to place majority investments. This will require a special package of incentives including financial support in various forms.

8. If the constraints are removed and Government takes initiatives for encouraging joint-ventures for fabs, a target production of about Rs.3,000 crores aimed by the terminal year of the IX Plan can be aimed.

9. Government should plan for establishing atleast two modern fabs as joint ventures during the ninth plan period. In addition to increasing the production by an order of magnitude, this will promote the growth of chip applications and emergence of new products and advanced technologies in the country, encourage local production of input materials, act as driving force for improving infrastructure for high tech. Industries and generate sizable export revenues in the long run.

10. As the above plans are executed and local activity in fabrication increases, there will be a scope for an independent mask-making facility. This can be accomplished viably by spinning off into a separate facility the existing mask units and upgrading the same.

11. Government should create a resource facility for IC’s for providing processes imporved at R&D institutions, trying out new ideas, prototyping of new products beofre transferring to industry, human resource development.

12. Manpower development for microelectronics needs to be undertaken through introduing proper courses at graduate and post graduate levels, special courses, training at the resource facility, training abroad, industry consulting, etc.

13. Technology development activity in various, institutions needs to be strengthened for building up capabilities.

14. Funds to the tune of Rs. 4,000-5000 crores need to be invested in the country for upgradation of existing facilities, establishing new modern production, establishment of a resource facility, manpower training and technology development. Government contribution needs to be of the order of Rs.2,500 crore.

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Government Actions Required

• Indirect taxes on all electronic products to be reduced to accelerate the market-Recognise microelectronics as a vital core industry.

• Import duties to inputs on microelectronics to be near zero.

• Hi-tech infrastructure to be established as Technology Parks.

• Subsidised interest rates for microelectronics financing.

• Attract global investments by incentives as in Malaysia/Thailand.

• Restructure semiconductor sector by consolidation in few units.

• Fair and fast customs procedures and approvals.

• For strategic projects like Mega-fabs, substantial government support.

• Strengthen technology development in R&D institutions.

• Create a resource facility for IC prototyping and training.

• To allocate Rs.2,500 crores in the Ninth Plan period to this area.

Summary of the concessions/incentives sought for Megafabs / microelectronics units

Tax Benefits

i) Exemption of corporate income tax for certain years ten(10) years with permission to carry forward losses and deduct them as expenses for up to 5 years.

ii) In case units are located in specified zones 50% reduction of income tax for five years after the termination of normal income tax holiday.

iii) Exclusion of dividend derived from promoted enterprises from taxable income during the corporate income tax exemption period.

iv) Allowance to deduct up to 25% of the investment cost on installing infrastructural facilities from taxable corporate income.

v) Exemption or reduction or major taxes including property tax, sales tax, import duty etc.

vi) Accelerated depreciation allowance (the present rate is 25% which could be enhanced to 33%).

vii) An allowance to deduct from taxable corporate income an amount equivalent to 5% of an increase in income derived from exports over the previous years, excluding the cost of insurance and transportation for 10 years from the first date on which income is earned.

viii) An allowance equal to double the cost of transportation, electricity, water supply for deduction from taxable corporate income for 10 years from the first day on which income is earned.

Guarantees

i) Against nationalization

ii) Against state monopolization of the sale of product similar to those produced by the promoted projects.

iii) Against price controls.

iv) Against tax exempted imports by Government or state enterprises.

Others

i) Procurement of indigenous raw materials, components or any other goods by the manufacturer be exempted for sales tax, octroi etc.

ii) Permission to bring in foreign nationals to undertake investment feasibility studies as also foreign &a234H technic experts to work on promoted projects.

iii) Import/export duties and policy to be at par with EPZ units.

iv) All import/export consignments to be given green channel.

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