VAT threatens closure of industry

Sandesh Prabhudesai
31 August 2001  

With Goan industry facing threat of closure due to VAT regime beginning in March next year, the state government has set up a committee of experts to study the issue threadbare and find viable solutions.

The government has also kept the draft industrial policy in abeyance, pending policy decision in the cabinet next week on new methodology and incentives to attract industry in the industrially backward tourist state.

"The major blow will be the withdrawal of 10 to 15 years of sales tax exemption from March due to VAT", points out Nitin Kunkolienkar, president of the Goa Chamber of Commerce and Industry.

The industry is happy that the VAT regime will also put an end to the entry tax imposed on raw materials imported in the state since last year. But Kunkolienkar finds no reason why new firms should come down when power and water tariff is quite high and infrastructural facilities are not up to the mark here.

Disagreeing with the argument, industry minister Shaikh Hassan has announced approving four new hi-tech industries worth Rs 90.5 crore this week, while four more worth Rs 100 crore are in pipeline. "Our BJP government has cleared 26 projects since last year worth Rs 400 crore", he adds.

While Goa still enjoys income tax holiday, the industry has urged the centre to extend it further. On the other hand, knowing that VAT regime will slow down the process of industrialisation, the state is also working on new incentives to attract industry.

Goa's major problem is that it functions as a processing zone, where raw materials have to be imported and finished products have also to be exported. Since CST will be withdrawn in a phased out manner during VAT regime, Goan industry will suffer a severe setback with production cost going up suddenly.

"We fear that at least 35 per cent industries in the state may head for a closure, especially in the electronics and engineering sector", predicts Kunkolienkar. Though the state has announced 50 per cent deferment scheme (meaning a subsidy) in replacement of ST exemption, he feels that this incentive is not enough.

While suggesting solutions like setting up depots here, chief minister Manohar Parrikar however has assured to take care that no industry dies in the state due to VAT. The committee, which also consists experts like Prof Mahesh Purohit and two from Maharashtra, is expected to look into all the practical problems in this regard.

"The centre should withdraw CST at once or small states like Goa should be granted relief on CST", opines Kunkolienkar. He also expresses need to build a trust-based system rather than simply taking action against the violators.

After working out modalities to save the existing industries and attract more to the tiny state, the government is expected to submit a draft legislation of VAT in the winter session, throwing it open for public debate.

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