Hyderabad:

The rollout of Goods and Services Tax (GST) on July 1 is giving jitters to the industrial sector over availing incentives being extended under the present VAT regime.

The TS Government has attracted nearly 3,500 industries during the past two years on the back of its 15-day online approval policy (TS-iPASS) by offering several incentives like lower tax rates and VAT exemptions. Non-tariff incentives include economical land lease terms and low power charges.

States have the flexibility to lower taxes in the existing VAT regime. But with GST, it will not be possible for states to lower taxes due to uniform GST tax rates  across the country. Various industries are already taking up the issue with the government, seeking clarity over the fate of various benefits being offered.

The government is also concerned about how to face competition from other states when it comes to drawing industries and investors after GST comes into effect. Companies have set up units with significant investment outlays based on incentives offered by the state as part of its investment promotion policy. However, the GST Act does not clarify the fate of incentives.

GST: Industries department working out modalities
Companies that have based their financial projections around these fiscal incentives may have to reassess their projections in the GST regime.

Officials of industries department are currently working out the modalities on how to overcome the industrial issues arising out of GST.

"The one option being considered could be asking investors to pay tax rates as per GST regime," said an an official of the industries department.

"The government will calculate how much excess they had paid under GST when compared to current VAT rates. The difference of amount will be refunded to investors later," said the official.

He is involved in working out the modalities for the GST regime. The official added that there are some issues — the state government faces heavy financial burden in case of huge gap in tax rates.

In the GST Council meeting held earlier, Union Finance Minister Arun Jaitley made it clear that there cannot be different tax rates for different states to promote industries.

He said it was up to the states to decide which incentives to continue and how much amount they would refund to investors later from the tax income they earn.