Post-GST tax benefits: Solution a must, otherwise Make in India will die a premature death

Though GST has been postponed for now, state governments would do well to sit down with firms they have promised tax sops to, in order to invest in their states, and figure out how to honour these promises—indeed, since tax sops are one way of attracting investors, a solution for existing investors will allow extending this to new ones as well. If, say, a Maruti has been given tax incentives to locate in Gujarat, this means the company can sell cars within the state and retain the VAT collected on them; the CST it pays on sales to, say, Karnataka will be refunded to it by Gujarat.

Once GST comes in, Gujarat can still allow Maruti to keep the GST levied in the state, but Karnataka gets to keep the GST on the sales within its boundaries—GST is a destination-based tax. In such a situation, an obvious solution is to extend the period for which the Gujarat GST can be retained by Maruti.

Since Maruti also produces cars in Haryana and may want to sell these models in Gujarat, another option is to allow Maruti to retain the GST for these sales as well. This is a good solution for any company that has production facilities in multiple states across the country.

While various automobile firms that have invested thousands of crore rupees in states like Tamil Nadu, Maharastra and Gujarat are already in discussions with them, the Centre also needs to work on similar solutions. In the case of mobile phones, those importing phones have to pay a countervailing duty while those who assemble them here get an excise benefit.

Since this is no longer possible under a GST regime, a solution could revolve around denying input credits to those who import phones while giving them to those who assemble them locally. Given those who have planned, or are planning mobile phone assembly facilties are naturally jittery, the earlier a solution is arrived at, the better—else, Make-in-India will die a premature death.

Source: The Financial Express