The Maharashtra government plans to revise the Package Scheme of Incentives (PSI) offered to attract investments in the state for industrial development, and to promote employment generation.
This is necessitated due to the launch of the Goods & Services Tax (GST), as beneficiaries from various sectors, including automobile, steel, cement, textiles and mirco, small and medium enterprises (MSMEs) may lose the permissible quantum of refund towards Value Added Tax (VAT) and central sales tax (CST) under the VAT regime. The state industries department has already launched an extensive review of the GST impact on various sectors. The department will then introduce a revised PSI. The present PSI, brought into effect in 2013, is applicable till March 2018.
An industries department official, on the condition of anonymity, said under the proposed revised PSI, industrial units will get interest and power tariff subsidies apart from the exemption in stamp duty, octroi duty and electricity duty. These benefits are generally granted as subsidies based on the quantum of payment of VAT and CST by companies to the state government according to their manufacturing activities over a specified time period. The state’s annual outgo towards refund paid to auto, cement, steel and other units is of the order of Rs 3,000 crore.
”Presently, industrial units get a VAT refund on 20 per cent of local sales (within Maharashtra) and a 2 per cent refund of CST on nearly 80 per cent of inter-state sales (outside the state). The CST is also paid to the state government (being the originating state) as it is calculated towards the incentive.
However, with the shift to the GST regime, the benefits will now be restricted to 20 per cent of local sales, with the units standing to lose out on a refund for 80 per cent of sales outside the state,” said the official. He added that various sectors made a strong case for the protection of their benefits during the GST regime, and called for an increase in its tenure beyond March 2018.
The officer said the textile sector has brought to the state government’s notice that it would have to bear an additional burden following a 5 per cent GST on cotton. Therefore, it has pleaded for a protection of benefits under the GST regime. Further, the small units, which are not entitled to benefits based on gross taxes paid, but on net taxes paid, have hinted that they would be hit badly.
KPMG, a leading auditing firm, in its recent analysis on the GST impact on PSI said the picture changes dramatically. There will be a two-fold impact on the quantum of incentives, therefore, inter-state sales will not contribute to the incentives under GST, and the effective tax rate could also be lower.