VAT fears spark small-industry exodus from Maharashtra

And now, makers of footwear, tea, dry-fruits, plastic stationery and even rakhees are toying with the idea of shifting their production facilities. If this happens, it will be a severe blow for Maharashtra, reeling under an unemployment crisis.

The market is abuzz on the shift of plastic stationery manufacturers who are planning to convert the ‘Made in Maharashtra’ tag to states which have lesser VAT tax rates. In the weeks to follow, more such moves can be expected, say industry watchers.

By slotting footwear and many other necessities under the 12.5 per cent tax now, the state will see big companies going for markets where the rate is 4 per cent, destroying the footwear industry in the state, said a dealer.

According to Viren Shah, Jt Secretary, Federation of Retail Traders Welfare Association, ‘‘It is bound to change the commercial character of Mumbai as we are already hearing talks of various shifts in the trading community. Traders dealing in dry fruits, tea and footwear are planning to take shelter in states where their commodities attract nil or less rate.’’

VAT woes have not even spared rakhee makers. ‘‘Manufacturers have started talks of shifting their material demand to Haryana and New Delhi. The worst impacted will be the 60,000 to 70,000 people from slum areas around Mumbai and Pune who work for eight months making the colourful threads,’’ says Jagdish Jadhav, chairman of Rakhee Makers and Dealers Association.

Even as the Empowered Committee on VAT meets the sales tax commissioners of the VAT adopting states on Friday, the trading community is hoping that Secretary of the Empowered Committee Ramesh Chandra keeps his promise of uniformity in tax rates and prevent shifting of production bases by small and medium manufacturers.

‘‘The tax structure is definitely harsh on Maharashtra and other states which employ higher VAT tax brackets. The government has adopted a mix of the EU nations and US’s tax structure and introduced some system which is anything but uniform,’’ Shah said.

Traders want uniformity in tax rates. Nanik Rupani, president of Indian Merchant Chambers who strongly supports VAT, feels that the best thing for the trading community is wait and watch before making any drastic moves.

But even the cautionary advice is accompanied by the critisicm as he adds: ‘‘The government should have done their homework before just announcing that they are adopting uniform tax rates like 130 odd countries.’’

Akhil Kheradia of the Wholesale Footwear Association, Maharashtra feels that the effects of the government going against their own white paper on VAT is worst felt by handcraftsmen. ‘‘They had promised that all necessities across states will be taxed at 4 per cent bracket,’’ he said.‘‘Now we have kharigars based in Maharashtra scouting for jobs,’’ he adds.

But KPMG’s Bhavna Doshi has the last word: ‘‘Shifting to Gujarat or Rajasthan may not serve the purpose as they are also soon bound to go for VAT. But the government might want to think about the trade anomalies which might happen between shift of trade between states with low tax rate and high tax rate for the same product.’’