Odisha is working on a policy to offer tax benefits from the state's share of the Goods and Services Tax to encourage companies to set up manufacturing units in the country's largest producer of aluminium and iron ores.
“We want to grandfather the earlier incentives on value-added tax. The state government is still deliberating how to come up with a fine-tuned strategy so that the units which were earlier drawing VAT reimbursements are able to more or less get the same incentives in the GST regime,” Sanjeev Chopra, principal secretary, Department of Industries, Odisha , told BloombergQuint over the phone.
Earlier, the state reimbursed the value-added tax to companies making investments in priority sectors like metals, apparel and textiles, food processing, petrochemical, chemicals and plastics, tourism and information technology. Odisha wants to ensure that units don't lose out on incentives after the GST rollout, Chopra said. It will come out with its policy by the end of the month.
The new nationwide tax that subsumed multiple state and central levies does not allow tax exemptions except in a few states. Manufacturing units in the northeast and hilly states like Himachal Pradesh, Uttarakhand and Jammu and Kashmir that used to get an excise holiday will continue to receive the GST benefit for another 10 years.
While it's difficult for the state to grant upfront exemptions under the GST regime, a possible workaround to continue the promises made under the erstwhile VAT regime is to reimburse the State GST paid by taxpayers, said Nimish Bhatia, director at law firm BDO India LLP. “Certain other states have already devised similar strategies, Telangana being one of them.”
Telangana offers a refund of State GST collected on the end product of the apparel and textiles industry for seven years. The impact of the benefits, however, will depend on whether states manage to refund taxes on time.
In order to deliver the incentives in spirit, it would be important to ensure timely reimbursements to keep the investor confidence alive, said Bhatia. At the same time, the refunds should be “carefully worked upon for priority, large, medium and small set-ups to ensure that the investor is not worse off, compared to the erstwhile regime”.
Ved Jain, former president of the Institute of Chartered Accountants of India, the governing body for the accounting profession, said GST will not allow a waiver of the tax. The new indirect tax allows manufacturing units an input tax credit. Their SGCT payouts factor in the credit available.
Odisha will have come up with a policy of refunding SGST to the extent actually paid after claiming the input credit, Jain said.
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