Taxing Intellectual Property Is A Big Disincentive For R&D: Cummins Global Chief

American diesel engine maker Cummins Inc, which over the weekend opened its largest technical centre in Pune at an investment of Rs 1,500 crore, has said termed the tax on intellectual property (IP) as a big "disincentive" for them even though it is bullish on India.

The American diesel engine specialist, which is celebrating 100 years, has been operating in the country for the 50-plus years. As a group, it collectively operates 21 manufacturing facilities in the country employing over 10,000.

"There are lots of complicated taxes in India. One such levy is the tax imposed on IP. We generate many IPs here in India and we use them in other markets as well. But we have to pay tax to government for this. While other countries give us tax discounts if we generate IPs, but India taxes it. My feeling is that this really is a big disincentive to do R&D," Cummins Inc chairman and chief executive Tom Linebarger told PTI in an interaction over the weekend in Pune.

The Centre had imposed tax on transactions relating to intellectual property in the 1994 budget if the IP rights were classified as services and the states used to levy tax on IP rights if the transaction involving such were classified as sale/deemed sale of goods under state sales tax rules.

Under the GST regime, IP is taxed if the transaction value or the price actually paid or payable for the said supply of goods/services at 12 per cent (6 percent each CGST and SGST). Linebarger said though India has lowered the tax on IP to 10 percent from 20 earlier and has also promised to bring it down to zero, it remains a "disadvantage" to do IP.

There are many challenges here but one of the biggest challenges is the off and on infrastructure development, he said, adding average development is good but still there are some sectors which are growing better than the rest while some others are growing not so well.

Sounding bullish on India, Linebarger said, "we are excited about India. Though it has had its strong times and weaker times this country is full of resources and there is all-round dynamism. We need infrastructure and certain basic things properly. Right now we are very optimistic about the Indian market". “The government's focus on infrastructure is having a big impact on our business here as the truck, construction, mining and marine industry is doing well now,” he added.

Linebarger also lauded the GST implementation as "a big positive" for their the business because "everything that is of national standard is better for the businesses."

It can be noted on March 1 Cummins opened its largest ever technology centre in Pune investing Rs 1,500 crore. The 67,500-sq meter Cummins Technology Centre India, the work on which began in 2013, can seat 2,500 engineers and is equipped with world-class labs, engine testing cells and other engineering facilities.

The facility, which is the largest for Cummins across the world, houses 36 engine test cell slots, two turbocharger rigs, one emissions burner test rig, eight product-line specific labs, and nine shared services labs.

Cummins India, which has invested around $1 billion in the country in the past five years alone, is group of seven legal entities across 200 locations in the country and the group operates 21 manufacturing facilities.

The seven entities (including four JVs) are Cummins India, Cummins Generator Technologies, Cummins Technologies, Fleetguard Filters, Tata Cummins, Valvoline Cummins and Cummins Sales and Service.