As part of the Central Government’s efforts to give a fillip to the Electronic System Design and Manufacturing (“ESDM”) sector in India, the Union Cabinet, in July 2012, approved granting fiscal incentives to the sector in the form of the Modified Special Incentive Package Scheme (“M-SIPS / the Scheme”). Further to the same, the Department of Electronics and Information Technology (“DeitY”) has notified the Scheme vide Notification No 24(10)/2010-IPHW dated July 27, 2012. (To read our alert on the Union Cabinet approval for these proposals, please click here).
M-SIPS is designed to provide a level playing field to indigenous manufacturing in the ESDM sector. This is proposed to be
done in the following manner:
Fiscal incentives
· Subsidy for investment in capital expenditure:
Type of unit
|
Incentive in SEZ
|
Incentive in non-SEZ
|
New Unit in ESDM sector
|
20% of capital expenditure
|
25% of capital expenditure
|
Existing unit in ESDM sector expanding its capacity/ modernization and diversification
|
20% of additional fixed capital investment in plant and machinery
|
25% of additional fixed capital investment in plant and machinery
|
· Reimbursement of CVD/ excise for capital equipment for the non-SEZ units.
· Reimbursement of central taxes and duties for units manufacturing intermediary products, like “Fabs” involved in semi-conductor wafering and chips, LCDs, etc.
Objective of M-SIPS
The evolution of the Scheme stems from the present scenario of various impediments in manufacture of these products like high cost of power and finance, high transactional costs and poor base of supply chain.
In light of the same, the Scheme has been notified with multifarious objectives, namely to:
- attract domestic and global investments into the ESDM sector within electronics manufacturing clusters (“EMCs”) as a means to minimize the disabilities faced;
- reduce transaction costs and remove impediments in the way of attracting investments for manufacture of semiconductors, components and electronic products; and
- reduce dependency on imports to procure semiconductors wafers, semi-conductors and majority of hi-tech components.
Applicability of M-SIPS
The M-SIPS shall be applicable to investments in new ESDM units and expansion of capacity/ modernization and diversification of existing ESDM units.
For the purpose of the Scheme –
- The unit should be set up within EMCs to be notified by DeitY
- The unit should be engaged in the design and manufacturing of the electronics and nano-electronics products and their accessories as listed in the Scheme
- It also includes Electronics Manufacturing Services (EMS) units, which are engaged in providing services related to manufacture of sub-assemblies and parts including integration services to the OEMs
- Investment thresholds applicable for units are different depending upon the type and nature of products as defined in the Scheme. These investment thresholds vary from INR 10 million to INR 54 billion depending on various product types, in the areas of setting up of fabs, assembly, testing, marking and packaging (ATMP) activities and manufacturing activities.
- To qualify as an expansion of capacity / modernization and diversification of an existing unit, there must be an increase in the value of fixed capital investments in plant and machinery by not less than 25 percent
Time limit
The Scheme shall be open for 3 years from the date of the notification (ie, from July 27, 2012) within which applications should be filed with the M-SIPS Appraisal Committee.
The incentives shall be available for investments made within the first 10 years of approval of a new unit. Further in case of expansion of capacity/ modernization and diversification of existing units, incentives are available within the first 10 years of approval of such expansion of capacity/ modernization and diversification.
Capital expenditure
Capital expenditure for the purpose of this scheme will be treated as total of capital expenditure in land (subject to a maximum of 2 percent of total capital expenditure), building, plant and machinery and technology including research and development.
Incentives against the capital expenditure shall be released after the end of financial year in which total investments exceeds the threshold value. Thereafter, incentives shall be provided on an annual basis on the value of investments made during the year.
Reimbursement of central taxes and duties
Reimbursement of central taxes and duties actually paid will be released after the end of the financial year in which the unit commences production. Thereafter, incentives shall be provided on an annual basis on the value of taxes/ duties actually paid during the year.
M-SIPS Appraisal Committee
An M-SIPS appraisal committee will be set up by DeitY to consider the applications under M-SIPS and submit its recommendations to the government. Basis such recommendations, approval will be granted to the applications by the Central Government.
Broad product categories
M-SIPS is proposed to be extended to units involved in the manufacture of the following product types:
- Electronic products including nano-electronic and telecom products (as per list provided)
- Intermediates, which include:
o Nano Electric components
o Semiconductor wafering
o Semiconductor chips
o Chip components, discrete semiconductors and power semiconductors
o Solar photovoltiacs
o Light emitting diodes (LED)
o Liquid crystal displays (LCD)
o Passive components, electro-mechanical components, mechanical parts and consumables and accessories
- Electronic Manufacturing Services (EMS)
For a detailed list of products, investment thresholds and incentives provided against the same, please click here for the Notification.
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