After GST, Odisha not keen on fresh fiscal incentives to industries

The impact of GST (Goods & Services Tax) on slowing revenue growth has had the Odisha government in a re-think mode to offer fiscal sops and incentives to investors, especially the new industries in the focus sectors.

In its latest industrial policy resolution, the IPR 2015, the state government has promised the reimbursement of Value Added Tax (VAT) and entry tax ranging from 75 per cent to 100 per cent over a span of five to 10 years. But, with GST subsuming the two indirect taxes, the future of the assured incentives to investors is at stake.

“Revenue growth is slow since the introduction of GST. Except for mining revenue and petroleum products that are out of GST’s ambit, in all other segments, the collection is sagging. At a time when we are seeking compensation to the Centre for under realisation of revenue, we cannot commit fresh fiscal sops for the industries. GST is still in a stabilisation stage and we have to wait till we commit any fiscal incentive”, said a senior Odisha government official.

The state's overall tax collection has risen by only two per cent after July and this was led by healthy growth in mining revenue and petroleum products which are out of GST purview. Between July and October this year, the state government realized Rs 3735.14 crore of revenue compared with Rs 3651.28 crore in the corresponding period of last fiscal.

Beyond the GST purview, the state government has collected Rs 4415.20 crore on petroleum products in the period under review by way of value added tax (VAT) and Central Sales Tax (CST). The figure includes Rs 2934 crore paid by Indian Oil Corporation Ltd (IOCL) towards VAT arrears between December 2015 and July 2017 for its Paradip crude oil refinery.

The state government has received Rs 333 crore as compensation for the months of July and August this year under the provisions of GST (Compensation to States) Act, 2017. This legislation accepts 2015-16 as the base financial year for calculation of tax and has approved an annual growth of 14 per cent. Odisha collected Rs 11047 crore tax in 2015-16. The revenue assessment for the state, after factoring in 14 per cent growth, works out at Rs 14357.76 crore.

Some industry stakeholders feel lack of incentives could hurt the flow of fresh investments to the state, especially in the focus sectors. Electronics manufacturing, textiles, handloom & apparel, downstream & ancillary industries in metals sectors, agro & seafood processing, tourism and chemicals, petrochemicals & plastics are the identified focus sectors where the state intends to attract Rs 2.5 lakh crore of fresh investments by 2020.

“Other states are working on a GST reimbursement model similar to the one envisaged in the pre-GST era. Odisha should also explore similar fiscal sops to enthuse the new investors", said a prospective investor.

Yet, the response from the industry shows a mixed trend as others feel incentives are unwarranted in the GST regime.

“In a one-tax, one-market scenario after GST, sops or incentives do not count. What counts is the government’s handholding to new entrepreneurs and faster approvals for projects. Any investor, whether existing or new, wants respect and recognition from the state government”, said Ramesh Mahapatra, president, Utkal Chamber of Commerce & Industry (UCCI).

Flow of investments to the state in the focus sectors is critically linked to the incentives announced in its IPR 2015. The state government, in its roadshows, has been selling various enabling provisions of the IPR to lure investors. Even bigger investors like Anrak Aluminium, which has proposed Rs 12,000 crore investments in Odisha, have asked for a GST holiday for 10 years in addition to other incentives.

Though top state officials have brainstormed over the fate of incentives in the shift to GST, they have not hit upon a solution yet.

Historically, Odisha has remained a favoured state for investments. A study by industry body Assocham ranks Odisha among the top three states in attracting live manufacturing investments between 2011-12 and 2016-17. But, with states jostling for improved rankings in the ‘Ease of Doing Business’ index, the sops or incentives on offer could tilt investor preferences.