Tamil Nadu is looking at restructuring incentives offered to industries, including those for existing memorandum of understandings due to the Goods and Services Tax (GST) regime. Under GST, exemptions given to industries are not allowed and the GST council has left it to the discretion of the States to grant exemptions for industries.
Tax experts point out one of the key challenges to the firms is whether they can avail themselves of the incentives available to them within their investment period, especially in cases where taxes are lower under GST in comparison to the prior period.
Tamil Nadu classifies investments coming into the State into various categories like ultra mega projects with investments above ₹4,000 crore to ₹5,000 crore, super mega projects investment ranging from over ₹2,000 to ₹5,000 crore and mega projects ranging above ₹350 crore to ₹1,500 crore.
Tamil Nadu houses major automobile companies including Ford, Hyundai, Renault-Nissan, Daimler as well auto components and other electronic industries.
Prior to GST, the State was offering refunds on value added tax paid by the firms for the investment period ranging from 10-14 years depending on the investment category under the so called structured package of incentives.
The incentives were based on certain conditions like generation of employment and also had a cap which had to be availed with the investment period. Apart from the tax sops, the State also offered standard incentives like electricity concession, stamp duty concessions among others.
However, under GST, rolled out from July 1, the value added tax and the central sales tax have been subsumed. Now, there is Central GST and State GST which vary for different industries.
Also, the government in the ongoing Parliament session clarified that the exemptions provided to industries shall not continue under the GST regime.
According to the State Industries Department official since 2011, the memorandum of understanding signed by the government has included a GST clause, since the rollout was in discussions from that time. The MoU signed at the 2015 global investors meet also include the GST clause.
The Global Investors Meet received investment pledges for 98 projects with an investment of ₹2,42,160 crore. Till now, 61 projects are under various stages of implementation with a cumulative investment of ₹29,615 crore, according to government’s policy note on Industries Department for 2017-18. The State is gearing up to launch the second edition of Global Investors Meet next year.
Clause in MoU
Tamil Nadu’s government GST clause in an MoU with a leading company reviewed by The Hindu said, “To make the tax-based incentive GST compatible, it is agreed that if any of the existing or current taxes included for soft loan gets included in the GST as and when introduced, then the protection of incentive would be provided to the extent of the current taxes getting realised in the GST by the government of Tamil Nadu based on the principle of revenue neutrality.”
According to MS Mani, Senior Director, Deloitte Haskins and Sells LLP, what the clauses mean is that the State would give refund on taxes to the extent of State GST. “So if state GST is ₹ 100 on something, the State will refund ₹100”.
“In the normal course there is a ceiling on tax incentives which needs to be utilised within the investment period. But in cases where the GST tax rates are lower it might be difficult to reach the ceiling within the said period. The State government will decide what it wants to do in those cases. For cases where taxes are higher in the GST regime, the ceiling may not be an issue,” Sachin Menon, Head of indirect tax at KPMG said.
“We are holding talks with stakeholders on restructuring the incentives and also have roped in a consultant to advice on the issue,” a State Industries Department official told The Hindu .
“We have received requests from industries to extend the tenure of the incentives. We are also looking if incentives can be offered from the compensation received from Centre on GST. But this entire area now is in discussion stage,” he added.
Asked whether the stress on State finances would affect incentives, the official said the State can manage it.
