Maharashtra, India’s leading industrial state, is planning to link job creation directly to fiscal incentives for industrial investors on the post-GST regime. The state government has begun work on revising its policy for industrial promotion as fiscal incentives offered earlier by states to woo investment will no longer be relevant now in a common market.
Tax incentives to investors was the key to Maharashtra’s existing industrial policy, which was last updated on April 1, 2013. High level sources in the government said the fiscal and non-fiscal incentives provided by the state had contributed in retaining the state’s status as the country’s most favoured industrial destination. Based mainly on the quantum and the region of capital investment, the state government has been offering incentives ranging from 20 per cent to 100 per cent of the capital investment for seven to ten years.
A 100 per cent subsidy in the Value Added Tax (minus the input tax credit) and the Central Sales Tax formed the key component of this incentive package. Industries investing in the lesser industrially developed districts, the no-industry districts, and the Naxalism-impacted districts are also offered exemption from electricity duty payments, stamp duty, and interest subsidy.
On the other hand, the mega industrial projects, involving a minimum investment of at least Rs 750 crore, or the ultra-mega projects (Rs 1,500 crore) are also eligible for partial waivers in stamp duty. Micro, medium, and small enterprises, meanwhile, are entitled to power tariff and capital subsidies.
But VAT and Central Sales Tax have now been subsumed in the GST. Further, Maharashtra being a manufacturing stage will lose out on some of the direct tax revenues from such investments with the GST shifting the focus to a consumption-based indirect tax regime. Wary that the change of taxation regime could impact Maharashtra’s industrial investment numbers, the state government is now working on a revised policy.
With tax breaks no longer relevant, the sources said the government had decided to shift the focus from quantum to the quality of investment. A senior official said, “The plan is to grant fiscal incentives on the basis of employment generated and product sales within the state.” Further, the government is also mulling the option of offering higher incentives for investment in agro-based industries, biotechnology, green power, gems and jewellery, and electronics, etc, which would be locally job-intensive.
Meanwhile, the sources said the government’s “more immediate” concern was for devising an alternate means to continue providing such fiscal incentives to those already eligible under the scheme. According to the sources, the government provides incentives, collectively worth Rs 4,000 crore annually on an average, to about 450 MSMEs and 400 mega or ultra-mega projects. The sources said the government was planning to link incentives for existing cases to product sales within the state. According to information, the government’s industries department and tax agencies are working with private consultants and industry experts for ways to compute the consumption of industrial products within the state.
The government sources, meanwhile, confirmed that the rate of investment in Maharashtra had been hit in the post-demonetisation and the pre-GST period. In the eight-month period since November 2016, barely 20-25 mega projects have committed new investments.