While the state government is pulling out all the stops to woo industrialists, skewed tax policy and corruption in government departments threatens to undermine its efforts.
Some major companies in Pithampur near Indore are running from pillar to post for VAT refund. Automobile major Eicher, which has a manufacturing unit in Pithampur, is claiming a VAT refund of Rs. 96 crore. However, its claims are stuck in the commercial taxes department, which has asked the company to furnish the details in support of its claims.
Corruption in certain government departments leads to undue harassment of company officials. Last year, Bridgestone India, in a letter to the principal secretary (labour), had accused officials of MP Labour Welfare Fund department of registering a false case against the directors of the company allegedly after they refused to pay bribes.
On skewed tax policy, one common complaint is that the tax input credit was much higher in the auto industry than the output tax, which results in accumulation of huge unutilised input tax credit. Also, the effective VAT on local purchase is at 5% against 2% from outside the state. While the state government has amended the VAT Act recently, restricting the input credit to the extent of tax paid by supplier, the industry is not satisfied with the move.
“The government should rectify these anomalies and ensure proper implementation of the industrial policy as the industrial development is directly related to the state’s industry policy,” feels Pithampur Industry Association president Gautam Kothari.
At present, several companies prefer to get their input material from outside the state even if it means paying 2% extra because they don’t want their money to be stuck in VAT department. For all goods attracting 13% VAT, if the company is entitled for 9% refund, it accumulates to a huge amount and eventually affects the working capital of a company. For example, Eicher has projected that if no refunds are received until 2016-17, then the accumulated VAT refund would cross Rs. 700 crore.
Some other issues such as export tax levied by the local municipal bodies, which was also a bone of contention between the industry and the government, has now been resolved with state government deciding to waive the export tax.