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India's tax plan could ruin its chip dreams

by on26 February 2024

Making the global shortage worse

India's plan to let a ban on imposing customs duties on cross-border digital e-commerce transactions run out may scupper India's more ambitious plans to become a global chip leader in the next five years, the industry has warned.

The World Semiconductor Council (WSC) sent a letter to Indian Prime Minister Narendra Modi warning bringing the customs duties in place could worsen the global chip shortage by hiking up semiconductor industry costs at a time when many governments worldwide are splashing out on expanding domestic chip supplies to keep up with rapidly advancing technologies.

Early next week, world leaders will meet at a World Trade Organization (WTO) meeting, just before the deadline to extend the ban hits in March.

Since 1998, the ban has been renewed every two years -- but India has grown worried that it's losing a lot of money from not imposing taxes as demand rises for its digital goods, like movies, e-books, or games.

The WSC warned Modi that ending the ban "would mean tariffs on digital e-commerce and countless transfers of chip design data across countries, raising costs and making chip shortages worse."

Pointing to Modi's €8.5 billion semiconductor incentive package -- which Modi has said is meant to boost India's industry through "giant leaps" in its mission to become a technology superpower -- the WSC warned Modi that pushing for customs duties may smash those global chip leader dreams.

Studies suggest India should offer tax breaks, not threaten to impose duties on chip design data. That includes a study from earlier this year, released after the Semiconductor Industry Association and the India Electronics and Semiconductor Association asked for a report from the Information Technology and Innovation Foundation (ITIF).

India and other developing nations may seek to narrow the ban rather than end it. An Indian government official told Reuters that "these issues need to be talked about and sorted" before India can decide whether to extend the ban.

Last modified on 26 February 2024
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