India is set to increase import duties on a number of luxury items, including automobiles, televisions, high-end mobile phones, tablets, laptops and exotic foods. As part of a series of strategic tax and FDI initiatives currently being implemented by Finance Minister Chidambaram, the increases are specifically targeting at imported consumer goods that add no manufacturing or FDI value to the country.
“The increases in these strategic items comes at a time when India is, for the first time, coordinating its FDI policy with tax policy,” says Chris Devonshire-Ellis, Managing Partner of Dezan Shira & Associates. “For example, while luxury tax is being imposed on smartphones and tablets, at the same time FDI restrictions in the telecommunications industry are being relaxed. The message is clear: manufacture these products in India for the domestic market or face being priced out through luxury tax. The same is true of autos and other sectors.”
India thus far has a patchy record of matching FDI policy with import duties. However this has now changed, and corporate policy as to accessing the Indian consumer market will have to change along with it.
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