Tax benefits for hill states

THE Centre may revive an inter-state wrangling over a tax holiday to the hill states. Already the idea of having a single market and a single tax has been distorted and needlessly complicated. The NDA government has added one more complication to the GST. It has promised to refund its share of 58 per cent of the taxes it will collect under the GST as part of the deal to promote industrial units in the hill and north-eastern states.

The new arrangement done outside the GST Council places on the states — Himachal Pradesh, J &K and Uttarakhand, among them — a responsibility to refund to these industries, numbering some 4,200, the remaining 42 per cent of the taxes collected under the GST. This is in accordance with the original tax holiday plan meant to encourage industry in these states. However, it is not yet clear whether these states will be able to meet their part of the commitment now. They had earlier promised tax incentives in the hope that local youth would get employment on priority, and more importantly, over a period when industrial establishments get going, they would not only recover the sacrificed tax revenue but also have a regular source of income. However, under the new arrangement the GST would be collected from these industries by the states consuming their products. By reimbursing 42 per cent tax claims of these units all that the hill states would get in return is possible employment for local youth, subject to meeting their requirements. It has been suggested that the Himachal assembly poll time-table has influenced the Central decision.

Ever since the Vajpayee government offered the tax holiday in 2003 for a 10-year period which was extended by the UPA, Punjab has blamed its failure to attract fresh investment or stop existing units from relocating to other states on the Central largess to Himachal Pradesh. The latest Central decision will not be appreciated by the political leadership in Punjab, struggling to bring in new units and woo the existing ones with sops, including subsidised power and tax incentives. This is another side-effect of the GST regime.