CII wants entry tax in MP abolished

The Confederation of Indian Industry (CII) has revived its demand for the abolition of entry tax in MP to make industry more competitive.

"The neighbouring states of Maharashtra and Gujarat have already announced the abolition of octroi in their states without introduction of any entry tax. Madhya Pradesh needs to follow this policy to make industry competitive," the apex chamber said in a memorandum of understanding submitted to the State Chief Minister Shivraj Singh Chouhan.

The chief minister has given a routine reply of 'according the top priority to the issue'. The CII had also submitted a similar memorandum few months back.

The state government levies entry tax on the sale and purchase of the raw and finished goods. Interestingly, entry tax is levied at the rate of 1 per cent on all raw materials purchased and re-imposes 2 per cent on finished goods (made from the same raw material).

"Effectively entry tax is levied at 3 per cent, which is totally irrational in the present global competitive business," the CII said.

The CII has pointed out that industrial units outside the state have an edge over Madhya Pradesh industrial units since they need not pay the 1 per cent entry tax on raw material. "To protect the industry within the State, the government should pay entry tax on goods purchased and sold within the state," the CII urged the chief minister.

Further, the CII has objected a state government decision to raise entry tax from 1 per cent to 2 per cent, which is the highest among all the states. "This has hampered the growth of industries severely," the CII added.

The state government has also raised entry tax on coal from 1 per cent to 2 per cent and the CII pointed out that the coal price itself had been increased two-folds in the last 3 years.

The state government has also imposed a 5 per cent tax on coal under "Madhya Pradesh Gramin Avsanrachana Sadak Vikas Adhiniyam" with effect from 2005. "This has impacted coal prices by almost Rs 100 per metric tonne," the business chamber has added.

The further increase in the coal cost by 1 per cent on account of increasing the rate of entry tax from 1 per cent to 2 per cent, as announced in the budget 2007-08, is making the situation worse. It is requested to review the matter and abolish the entry tax and additional tax of 5% on coal, the chamber said.

Meanwhile, tyre, tube, flaps and auto part makers have protested against entry tax in Madhya Pradesh. In various memorandum submitted to the state industries and commercial tax departments and the state chief minister Shivraj Singh Chouhan, the manufacturers have demanded immediate abrogation of entry tax.

The Madhya Pradesh Chapter of Confederation of Indian Industry had raised the demand of the industry earlier but state government paid no attention to it.

"Other states have abrogated the entry tax after VAT regime Prior to value added tax (VAT) regime sales tax was levied at 8% plus 2% entry and a surcharge on it at 15% there by the effective tax rate of 11.83 per cent on these products. Post VAT regime the state government imposed 12.5% VAT, after adding 2% entry tax on it, the effective rates are as high as 14.5% on the products," said a memorandum submitted by a tyre manufacturer. Thus the total tax has gone up post VAT regime effectively at 3.12% with effect from April one 2006. "While neighbouring states namely Rajasthan, Gujarat, Uttar Pradesh, Maharashtra and Chhattisgarh the rate of tax is higher by only 2% on tyre, tubes and flaps.

"The tyre industry which is currently operating at a very thin margin due to global competition, higher rate of tax of 2% as above plays a very important role in the survival of the industry," CII has echoed industry's demand in a memorandum submitted to the state chief minister. The chamber has demanded immediate withdrawal of entry tax on sale of tyre, tube flaps in the state.

In another similar issue the CII has pointed out that Automobile Sector, which has been given "Thrust Sector" sates by the Government, entry tax on Motor Vehicle Parts was exempted through a notification issued on April 30, 2002. "This exemption was available for industry till 31 March 2007.The extension has not been granted so far after 1 April 2007. "This has resulted in levy of 1% entry tax on all motor vehicle parts," CII has said.

This imposition of tax (by not extending the exemption) has severe cost implications for the automobile sector in manufacture or assembly of motor vehicles or major parts thereof. "The material constitute 70 to 80% of the cost of manufacture and therefore levy of entry tax at 1% has increased the cost of manufacture of motor vehicles and their parts in the state to the extent of 0.7% or more depending on the model, value and type," the CII added. Add to it entry of multi-nationals in the Indian automobile segment market has become highly competitive and the sale prices are being decided by the market or dependent on the competition's sale price.

"This naturally restricts the ability of the automobile companies or part manufacturers, located in the state, to pass the additional cost pressure to consumers," the CII said further.

So far the department of industry and the state chief minister secretariat have not responded to the industry in this regard.