Monday, December 03, 2012

TYRE SECTOR: TAX STRUCTURE

As Dunlop cuts production, other tyre manufacturers should consider following suit

More importantly, the inverted tax structure has been the topic of debate between the Government and tyre manufacturers in the country for years now. And why wouldn’t it be, when the raw material (natural rubber) attracts an import duty of 70%, whereas tyre imports attracts a significantly low duty of 10%? “The tyre manufacturers are against the inverted tax structure for years but the end of their problems is still not in sight,” laments Girish Solanki, Mid-Cap analyst, Angel Broking. And many players have already cut their production and are relying on exports as the only factor attracting them is the low cost of labour.

China can surely be an option which the manufacturers are eying on to shift their production facilities but the only point of worry is that the Government could lift the subsidies and with the ‘you cannot take your assets back’ policy present there, the tyre manufacturers are still in a situation of dilemma.

But economies like Malaysia and Indonesia can surely be a place to be in for the tyre manufacturers as “the cost of raw material is 20% lower than that of India,” added Solanki. Moreover, labour cost is more or less competitive (though India is at the supreme position). So tyre manufacturing in India is not feasible with the current tax structure and manufacturers should perhaps bet on new destinations to roll out their ‘hot wheels’!


Source : IIPM Editorial, 2012.An Initiative of IIPM, Malay Chaudhuri

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