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Gujarat still debating sales tax holiday for Kutch

Ashraf Sayed in Gandhinagar

After promising sops for industry in the earthquake-ravaged district of Kutch with the hope of pulling in massive investment, the Gujarat government is dragging its feet on making the move official.

The government is yet to notify a promised sales tax holiday to industrial units to be set up in Kutch district. Prime Minister Atal Bihari Vajpayee's assurance of extending exemption from Central excise to even existing industrial units to revive Kutch's economy has added to the state's woes.

Vajpayee, during his June visit to Kutch, had announced a five-year excise holiday to industrial units to be set up in the district. Patel said the state government would come out with a matching gesture -- a sales tax holiday for the period.

While New Delhi subsequently granted a tax holiday to industrial units to be set up by March 31, 2003, the state government is still to finalise and make official its promised matching gesture.

This has created doubts among potential investors as Industry Minister Suresh Mehta had promised the government would notify its decision on a tax holiday within a week of releasing the federal notification on excise concessions July 31.

Mehta anticipates a huge investment of Rs 200-250 billion in the desert district of Kutch because of the twin benefits promised to new ventures.

A delegation of the Gujarat Chamber of Commerce and Industry met Patel on Tuesday and urged him to immediately announce a sales tax holiday.

Meanwhile, industry associations and MPs and legislators from Kutch met Vajpayee earlier and requested excise concessions for even the existing units, and an extension of the time limit for setting up of new units till March 31, 2004.

Bharatiya Janata Party MP Pushpadan Gadhavi said Vajpayee's response was "very positive" because he felt the existing industrial units had suffered the most in the killer quake of January 26 and should be entitled to tax benefits.

An earthquake measuring 6.9 on the Richter scale ripped through Gujarat on Republic Day, killing about 25,000 people and destroying property worth billions. Kutch bore the brunt of the devastation.

Gujarat Finance Minister Vajubhai Vala said that the sales tax holiday announcement might not be made during the current monsoon session of the state Assembly ending August 31. Asked what had delayed the announcement, Vala said: "There is no delay. Things are being worked out and the notification will be issued soon."

The finance minister also indicated that officials of his department were holding discussion with their counterparts in New Delhi to work out the modalities.

According to P K Lehri, principal secretary to the chief minister, the state government had also been discussing with senior officials of the Indian finance ministry the pros and cons of New Delhi's proposal to introduce value-added tax in all states to replace sales tax.

The proposal to introduce VAT is to maintain uniformity in the tax structure across the country.

The central government proposal, likely to become operational from the next financial year, would have to incorporate the tax holiday proposed for Kutch, Lehri said.

Moreover, he said, the state would have to look into the financial burden that may fall on its exchequer if the central government grants excise concession to existing industrial units in Kutch also.

Officials in the state finance department said the government would take at least 10 days to make any tax announcement for Kutch as pressure was mounting from other earthquake-devastated areas, mainly Saurashtra, to extend the same benefits to them as well to revive the battered economies.

Indo-Asian News Service

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