GST – States to continue tax incentives in Auto Sector

State Incentives are offered by State Government under the Industrial Promotion Schemes, known as Package Scheme of Incentives (PSI) in Maharashtra. The purpose of these schemes is to attract investments in the State for industrial development and employment generation.

These state subsidies are generally granted based on the amount of indirect taxes paid by the companies to the State Government on their manufacturing activities over a specified period. Thus, the continuance or discontinuance of such state incentives under GST becomes a critical aspect for companies which are getting these benefits in the current system.

Automobile industry being one of such industries which gets state tax benefits is now seeking assurances as it is worried about the fate of earlier promised tax incentives on investments done in various states, once GST takes effect.

In this regards, Company representatives and their apex bodies (Society of Indian Automobile Manufacturers, SIAM) have met atleast three state governments in recent weeks. Maharashtra, Gujarat and Karnataka have told the executives that they will be honouring the earlier commitments.

These benefits vary from Company to Company but the industry benefit runs in thousands of crores.

“If the promised benefits are not honoured, a state risks future investments,” said an industry official.

Since GST gets levied at the point of consumption, which could be outside the state where of production, a mechanism will have to be instituted to re-channel the incentives to companies.

SIAM said it has also met the revenue department of the Union finance ministry and got an assurance that the benefits of excise would be reimbursed in some form under GST.

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