The Indian government should establish a dedicated defence-specific Special Economic Zone (SEZ), apart from providing a tax-equalisation subsidy, as the fiscal regime plays a critical role in defence market growth, an industry study has said.
"The government is urged to consider the establishment of dedicated defence-specific SEZs, establishment of a tax equalisation subsidy linked to value of goods and services supplied to the defence sector, and exemptions to offset joint ventures from Research and Development (R&D) cess," said a joint study by the Confederation of Indian Industry and audit and advisory firm KPMG.
"The fiscal regime plays a critical role in any defence market in creating an environment that incentivises and supports long-term risk taking, investment and R&D required by the industry," the report said, adding that the general view of the global defence industry was that India currently has a comparatively aggressive and complex tax regime.
It said that with skilled intensive manufacturing capabilities and a world-class IT base, India had the "right ingredients to become a key link in the global defence supply chain.”
The study also sought exemption from R&D cess for joint ventures and implementing the offset obligations under the Defence Procurement Procedure introduced a couple of years ago to energise the defence market.