Apple Reportedly Lobbying Indian Government to Amend Tax Law Hindering Its Expansion Plans

Apple is reportedly lobbying the Indian government to amend a tax law that it believes is obstructing its growth in the country. This issue is seen as a potential barrier to Apple's future growth in India, according to sources. As Apple expands its presence in India, it seeks to diversify beyond China. Counterpoint Research notes that since 2022, iPhone's market share in India has doubled to 8%, while India's contribution to global iPhone shipments has risen from 6% to 25%.

India stands as the second-largest mobile market globally. Apple's contract manufacturers, Foxconn and Tata, have invested billions of dollars into establishing five plants in India. A significant portion of these investments goes towards acquiring expensive machinery for assembling iPhones. Experts warn that Apple could face billions in additional taxes if it alters its business practices without persuading New Delhi to amend a 1961 law concerning foreign ownership of equipment used in India.

Apple's Tax Concerns

In China, Apple provides machines for iPhone production to its contract manufacturers without incurring taxes, even though it retains ownership. However, this arrangement isn't feasible in India due to the Income Tax Act. The act would classify such ownership by Apple as a "business connection," making the company's iPhone profits subject to Indian taxes, according to a senior government official and two industry sources.

Apple executives have been in discussions with Indian officials over recent months about modifying the law, fearing that current legislation could impede their future growth. "Contract manufacturers cannot put up money beyond a point," said an industry source. "If the legacy law is changed, it will become easy for Apple to expand ... India can become more competitive globally."

Investment and Expansion

Smartphone manufacturing plays a crucial role in Prime Minister Narendra Modi's agenda. Last year, India's deputy IT minister privately expressed concerns that China and Vietnam might outpace India as major smartphone export hubs due to their lower tariffs on phone parts. A senior Indian official mentioned that discussions on taxation rules affecting Apple are ongoing but noted New Delhi's caution as any legal changes could affect its sovereign right to tax foreign companies.

"It's a tough call," said the official, emphasizing that Apple's increased investments are equally vital. "India needs investments. We have to find a solution." Since 2023, Apple has opened several directly-owned retail stores in India while also selling products through online and offline distributors.

Future Prospects

Foxconn and Tata have collectively invested over $5 billion in establishing Apple manufacturing facilities over the years. Despite these efforts, neither Apple nor India's IT and finance ministries responded to Reuters' inquiries regarding ongoing discussions about potential tax law amendments.

The outcome of these negotiations could significantly impact Apple's strategy and operations within India. As both parties seek a resolution that balances investment incentives with tax obligations, the future of Apple's expansion plans remains closely watched by industry observers.

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