The Tamil Nadu government has asked the Centre to adopt a cautious approach on the 'complex issue' of providing area-based tax exemptions in the backdrop of the Andhra Pradesh State Reorganisation Act, 2014, saying such sops could affect the neighbouring state.
Chief Minister J Jayalalithaa has told Prime Minister Narendra Modi that the Centre has made a term of reference to the 14th Finance Commission on making recommendations on the resources that would be available to the successor or reorganised states on reorganisation of Andhra Pradesh in accordance with the Andhra Pradesh Reorganization Act, 2014.
It promised appropriate fiscal measures, including offer of tax incentives to promote industrialisation and economic growth in both the states, she said.
In a letter to Modi dated August 24, which was released today, Jayalalithaa said that as a neighbouring state, Tamil Nadu did not 'begrudge' benefits given to the two states, but the "nature and type of concessions have not been indicated in the Act and the matter appears to have been left to the discretion of the Government of India."
"The Andhra Pradesh State Re-organisation Act,2014,already contains a substantial and significant economic package. Hence, I strongly urge you to adopt a cautious approach to the complex issue of providing area-based tax concessions in the name of encouraging economic development in these two states."
"Such exemptions run counter to one of the basic thrusts of economic reforms - a rational tax policy that is neutral, encourages a common market in the country, rewards competitive efficiency, and exploits comparative advantage. Any shift of investments from states with a strong infrastructure and trained manpower to other states motivated by tax reliefs alone would undo the two decade long work of rationalisation of tax structures," she said while expressing her government's 'apprehensions' on the matter.
The CM recalled there was a 'spirited' debate on this issue at the National Development Council meet in 2005 during the UPA regime when 'almost all' Chief Ministers had favoured scrapping such exemptions as 'they significantly distorted the investment decisions of companies and corporate houses.
