Maharashtra civic bodies oppose octroi removal

Mumbai | Updated: Nov 14 2005, 06:06am hrs
Maharashtra was the first state to raise concern against the Centres decision to offer a range of concessions to industries setting up shop in Himachal Pradesh and Uttaranchal. The state is losing a major part of its revenue following the tendency of industry, particularly in the pharma and allied sectors, to migrate to the new tax havens.

The state finance minister Jayant Patil recently called upon all states to take up the issue at the National Development Council. Mr Patil, who is also a member of the Centres high powered committee on value added tax (Vat), argued that such incentives distort the competitive strength of other states, including Maharashtra. However, nothing much could be done to check the rapid migration flow.

Although Maharashtra is a top destination for domestic and foreign investments and also a leading contributor for the countrys trade in the field of manufacturing and engineering, software, pharmaceuticals and agriculture and allied activities, the imposition of octroi duty by civic bodies across the state has been a major roadblock.

Octroi duty is the major negative here, affecting investment and trade. In smaller civic bodies, the government compensates revenues in lieu of octroi duty. However, there has been widespread opposition to the removal of octroi in Mumbai, Thane, Nagpur and other civic bodies whose budget heavily depends on octroi collections, said a senior state government official.

He told FE that the state has been quite industry and trade-friendly, when it comes to resource mobilisation measures in the annual budget.

In view of limitations to the recently imposed Vat, the government has recently announced a mega project policy defining investments of Rs 500 crore in developed and semi-developed regions as mega projects. The state has slashed the previous limit of Rs 1,000 crore to Rs 500 crore by offering a slew of concessions in octroi, entry tax, electricity duty and stamp duty. In less developed and non developed regions, the mega project limit was reduced from Rs 750 crore to Rs 250 crore.

Government sources claim the policy was within the prescribed limit of uniform floor rates and not a distorting one. In fact, the state hopes, by slashing such limits and offering incentives, there is every possibility of increasing the turnover of these units and thereby raise trade and revenue for the state.

In response to a threat from Andhra Pradesh and Karnataka in luring IT and IT enabled services and their exports, Maharashtra has launched a special sector-focused policy. Its move to develop special zones, especially in Pune and Thane, has paid off. Several IT and ITeS companies have been queuing up. This has led a manifold rise in software exports.