Apple (NASDAQ:AAPL) is lobbying the Indian government to modify its income tax law to ensure that the company is not taxed for ownership of high-end iPhone machinery it provides to its contract manufacturers, an issue seen as an obstacle to its future expansion, Reuters said citing sources.
The move comes amid Apple’s growing India presence as looks to diversifies beyond China. As per Counterpoint Research, iPhone’s share in the Indian market has doubled to 8% since 2022. China still accounts for 75% of global iPhone shipments, but India’s share has quadrupled to 25% since 2022.
Experts noted that Apple potentially faces billions of dollars in additional taxes if it changes its business practices without convincing India to change a 1961 law covering foreign ownership of equipment used in India, the report added.
Apple did not immediately respond to a request for comment from Seeking Alpha.
Apple’s contract manufacturers Foxconn Technology (OTCPK:FXCOF) — which is formally known as Hon Hai Precision (OTCPK:HNHAF) (OTCPK:HNHPF) — and Tata have spent billions of dollars to open five plants, but millions of those expenses go into buying expenses machines for iPhone assembly.
In China, Apple procures the machines used for making iPhones and gives them to its contract manufacturers, and is not subject to tax even though it still owns them, the report noted.
However, this is not possible in India as the Income Tax Act would consider such ownership by Apple a “business connection” making the company’s iPhone profits liable for Indian taxes, the report added citing a senior government official and two other industry sources.
In recent months, Apple’s executives have held discussions with the Indian officials to revise the law, as it is concerned the current rules could hinder its future growth, the report noted.
“Contract manufacturers cannot put up money beyond a point,” said the first industry source, according to the report. “If the legacy law is changed, it will become easy for Apple to expand … India can become more competitive globally.”
A senior Indian official said “discussions on taxation rules impacting Apple are ongoing”, but India is cautious, as any changes to the law may diminish its sovereign right to tax a foreign company, the report noted.
“It’s a tough call,” said the official, who highlighted that Apple’s increased investments are equally vital.
“India needs investments. We have to find a solution.”
Since 2023, Apple has opened three directly-owned retail stores in India, though it also sells its products via online and offline distributors.
The income tax law, does not impact Apple’s South Korean rival Samsung Electronics (OTCPK:SSNLF) as almost all of its phones are manufactured in its own Indian factories.
The India Cellular & Electronics Association, or ICEA, which backs Apple, has in a confidential representation to the government called for revision to the law, noting that tax certainty is “paramount for businesses seeking to expand and scale.”
“Typical CMs [contract manufacturers] are unable or unwilling to invest in such large quantities of specialized equipment … The cost of the equipment can rise to billions of dollars,” said ICEA, without naming any company, the report noted.
Smartphone manufacturing is a key matter of Prime Minister Narendra Modi’s agenda, and India’s deputy IT minister last year privately noted that China and Vietnam could race ahead as major smartphone export hubs because of their lower tariffs on phone parts, the report added/