India's New Safe Harbour Regime Offers Competitive Edge in Component Warehousing

India's budget introduces a safe harbour regime for component warehousing linked to manufacturing, proposing an effective tax of 0.7%. This initiative aims to lower regulatory risks and assure more predictable taxation, offering an advantage over other manufacturing hubs like Vietnam.

In a strategic move to boost electronic manufacturing, India's latest budget proposal introduces a safe harbour regime for component warehousing. This scheme, linked to manufacturing activities, sets an effective tax rate of approximately 0.7%, a rate that is more competitive than many global jurisdictions, including Vietnam, which often touts a 1% effective tax rate.

The proposal promises not only cost efficiency but also a reduction in regulatory risks for multinational corporations. It aims to provide more predictable taxation outcomes, minimizing the usual litigations and compliance friction associated with manufacturing and logistics. This stability is seen as crucial for the high-volume, low-margin nature of warehousing and parts staging operations.

Finance Ministry sources highlight that unlike certain low-tax jurisdictions where benefits are often tied to stringent conditions and renegotiations, the newly codified safe harbour offers more certainty. The arrangement could position India as a favorable destination for component warehousing, reducing costs and offering clearer transfer pricing and audit protocols.

(With inputs from agencies.)