Goa wants tax sops back to woo industry

Prashun Bhaumik |

By Sanjay Dhavalikar

As the final countdown for the Central budget has begun, the Goa industry is trying to make one last attempt to re-gain its tax holiday. Ever since the tax holiday was withdrawn in 2004, the industry sector has suffered severely as many units have shifted to other states.

“Tax concessions should be given to industrial units in small states like Goa as it continues to exist in some other states. If concessions cannot be given to Goa then the Central government should create a level playing field for all industrial units in various parts of the country by discontinuing the special tax exemption given to industrial units in certain states,” demanded the lone Rajya Sabha member from Goa, Shantaram Naik.

While participating in Delhi in a meeting of the consultative committee on finance, conveyed by Finance Minister Pranab Mukherjee, the Goa MP Shantaram Naik advocated the case of industrial units in Goa. Naik is a member of the consultative committee on finance.

Naik pointed out, “Industrial units in North Eastern states and also some hilly states like Himachal Pradesh still enjoy income tax concessions. On the contrary, tax benefits given to industrial units in Goa were withdrawn. Goan units were put in a tremendous disadvantageous position. The then finance minister P Chidambaram had assured Goa in 2007 that concessions given to some states would be withdrawn and a level playing field will be created. But the assurance did not materialize.”

Industrial units in states enjoying tax benefits do not have to pay income tax for the first five years and at the same time they are exempted from paying excise duty for 10 years after the project is set up. Goa enjoyed tax benefits till 2004 and then it was withdrawn by the Central government. Making use of tax sops and incentives offered by the state government, many Indian as well as multi-national firms set up manufacturing bases in Goa. Pharmaceutical units were at the forefront.

The Goa government had even taken initiatives to create a strong infrastructure and good industrial atmosphere. But the flow of incoming investments slowed down after the withdrawal of the tax holiday in 2004. On the contrary, Himachal Pradesh’s sales and income tax holidays continued and the hill state attracted many companies from Goa. Marpol Pvt Ltd, a Rs 40 crore company which produces powder coatings, acquired land in Himachal Pradesh in 2004 and set up a new unit there.

Many companies despite having units in Goa decided to expand in Himachal Pradesh and some of them have gradually shifted their entire business to Himachal Pradesh. Industry owners admit that they plan to set up small units at places closer to mature markets like Delhi, Madhya Pradesh etc rather than continuing to export goods from Goa. They feel it is profitable to be at a place where they can get the best tax facility, even if it is a little away from the port.

“The Goa government should make more efforts to boost industry and create confidence in the minds of important industry players. You need to be competitive in the world market today.
In the WTO era, only companies with the lowest cost of production and best operative standards will survive,” stated former president of Goa Chamber of Commerce and Industry Nitin Kunkolienkar.

Not only Goa, but industrially advanced states such as Punjab and Haryana have also been demanding a level playing field for industry all over India by scrapping tax holidays still existing in some states. Himachal Pradesh and Uttaranchal have attracted huge investments at the cost of their neighbours – Punjab and Haryana.

In spite of the demands from Goa, Punjab and Haryana the Central government has not given any concrete assurance for scraping the tax holiday policy. Though the Central government has allowed tax holidays in hill states and areas like Kutch in Gujarat, time and again Central finance ministers have maintained that the tax holiday will not continue for long.

Himachal Pradesh is lobbying for the extension of tax benefits and special industrial package to the state for the next three years, up to 2013. Tax benefits to Himachal Pradesh are due for expiry in March 2010. Himachal Pradesh was awarded a special status, under which industries in the state enjoyed income tax holiday, central excise exemption and transport subsidy. Himachal Pradesh government is worried that many industrial units are contemplating to shift their operating units to north eastern states, which also enjoy similar benefits.

The tourism industry in Goa too feels it should be granted tax sops in the Central budget. The Goa Chamber of Commerce and Industry (GCCI) strongly advocate the case of the domestic tourism industry. “Goa being a world famous tourist destination, the state’s tourism infrastructure needs to be upgraded if it were to compete with other famous tourist destinations the world over,” executive members of GCCI have stated. They express confidence that the finance minister would give tax exemption to Goa to
cover tourism infrastructure such as amusement parks, water sports, marinas etc.

Section 80 ID of the Income Tax Act presently provides for a five-year tax holiday to new hotels of two, three and four star categories and convention centres. Though Goa ranks very high among favoured tourist destinations in the world, the state grossly lacks in world class tourism infrastructure. Similarly, selective tax concessions specifically designed for the export sector would help the export oriented pharmaceutical industry in Goa.

The GCCI has been highlighting the instability and recessionary trends in Goa to advocate the case for tax sops. The big revenue earner – tourism – has experienced a 15 to 16 per cent fall in tourist arrivals as well as in business and has led to the loss of thousands of jobs. Therefore the Goa industry strongly feels the need for a special financial package along with some tax sops.