NEW DELHI/BANGALORE, INDIA – India on Saturday raised taxes on imports of goods including electronics, toys and furniture, aiming to give impetus to domestic manufacturing in a move that will hit Sweden’s IKEA and other foreign firms.
The measures, announced by Finance Minister Nirmala Sitharaman in her budget for 2020-21, come amid criticism from some companies that India has increasingly resorted to protectionist rules that discriminate against foreign companies.
Listing the new taxes, the government said they were in line with Prime Minister Narendra Modi’s “Make in India” program aimed at promoting domestic industry.
Taxes on imports of items including kitchenware, fans and small appliances will be doubled to 20 percent, while the levy on furniture, including seats, lamps and mattresses, will be raised to 25 percent from 20 percent.
IKEA’s India CEO Peter Betzel said the company was disappointed with the increase. “We are further evaluating the impact of the hike on our total business,” he said. IKEA, which has committed more than €1.5 billion ($1.7 billion) in India investments, imports roughly 75 percent of goods sold in the country.
Sitharaman defended the decision, saying the rationale was that if certain goods were being manufactured locally at “equal quality, if not better, (then) we had no reason to import.”
Taxes on imported toys would be tripled to 60 percent, a move one industry executive said could hit imports of toys made by firms such as Lego, Hasbro and Mattel, and boost smuggling of unbranded toys from abroad.
“It’s a protectionist move,” the executive said.
The new tariffs also come as India and the United States try to resolve trade differences and have been at odds over certain tariffs. Washington has been urging India to not impose trade barriers that restrict growth of American firms.
The government also said a 5 percent tax will be imposed on medical device imports to fund health infrastructure. The step could hit firms such as Abbott that are already battling price caps imposed by the government.
“It would make some imported medical devices costlier and that increase will likely be passed on to consumers,” said an India-based executive of a foreign medical device company.
The duty on shelled walnuts will be raised to 100 percent from 30 percent, while certain car and smartphone parts will also face higher import taxes.
Income tax rates for individuals were lowered as part of a goal to lift consumption in an economy that is set to grow 5 percent this fiscal year, the weakest pace in over a decade.
Economists were muted in their reaction to the fiscal plan, which also proposed levying a dividend distribution tax on investors instead of companies, and announced abolishing some tax exemptions.
The government will miss its deficit goals for a third year, pushing the shortfall to 3.8 percent of GDP in the year ending in March. The deficit target for the coming fiscal year was widened to 3.5 percent.
The deficit will be funded by record market borrowing of 7.8 trillion rupees ($100 billion) in the coming year. The government also plans to give foreign investors greater access to the nation’s debt, a move seen as a precursor to getting its securities included in global bond indexes.
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