The safe harbour regime proposed in the Union Budget for component warehousing linked to manufacturing could offer multinational companies a comparable or better post-tax cost structure, along with lower regulatory risk, Finance Ministry sources told PTI.The proposal, which targets supply chain efficiency for electronics manufacturing, is expected to result in an effective tax of about 0.7 per cent, significantly lower than prevailing structures in some competing jurisdictions.To support just-in-time logistics for electronics manufacturing, the Budget 2026-27 has proposed providing safe harbour to non-residents for component warehousing in bonded warehouses at a profit margin of 2 per cent of invoice value. The resulting tax incidence is estimated at about 0.7 per cent.Finance Ministry sources said the structure compares favourably with competing global hubs.“This also offers much higher certainty on transfer pricing and audit exposure. Unlike ‘low-tax’ jurisdictions where benefits can be conditional on incentives, substance tests, or periodic renegotiations, a codified safe harbour typically reduces litigation risk, compliance friction, and time-to-decision for MNC supply chains,” sources said.They added that the effective tax outcome could be lower than the roughly 1 per cent rate often cited for Vietnam and similar manufacturing hubs.Sources noted that the certainty factor is particularly important for electronics manufacturing supply chains, where warehousing and parts staging are high-volume but low-margin operations.They said predictable low taxation combined with lower dispute risk could be more valuable than headline tax incentives alone.According to sources, India can offer a comparable or better post-tax cost structure with lower regulatory risk, strengthening its competitiveness even if headline effective tax rates elsewhere appear marginally lower.
