Area-based tax exemptions will undergo a key change in the proposed goods and services tax (GST) regime?industrial units in the specified areas will need to pay the duties first and get a refund later. This is to ensure that the credit chain in the GST regime is not disturbed.
The government, however, has decided not to accept the Thirteenth Finance Commission’s recommendation that these exemptions be replaced by a new system of cash subsidy, official sources said. The government believes that cash subsidy is not ?sound economics.?
The policy stance is clear: area-based exemptions are being phased out, but units set up on the promise that the bounty would be available for them for specified periods cannot be duped.
The pay-first-get-refund-later policy is already there in Jammu and Kashmir, one of the states where tax holidays are given to industries. Industries set up in the North East, Sikkim, Uttarakhand and Himachal Pradesh enjoy exemption from payment of Cenvat due to the geographical location. While in Jammu and Kashmir, the duty is first paid and then refund claimed, in Uttarakhand and Himachal Pradesh the industries do not pay duty at all.
?We are mulling over various methods to re-design the area-based exemption scheme. A cash-subsidy in lieu of the tax-sop would be a complicated thing and needs to be studies economically. We are looking at system of tax payment and refund rather than no payment at all,? a senior finance ministry official told FE.
The Finance Commission had suggested that direct investment linked cash subsidy may be given, rather than area based exemptions, if it was considered necessary to provide support to industry for balanced regional development. It suggested that excise duty exemptions given to industrial units be converted into a subsidy scheme.
