Madhya Pradesh entry tax to stay

The Madhya Pradesh government does not buy the argument of SMEs (small and medium enterprises) that entry tax is hindering the growth of the sector.

It has said it is unlikely to do away with entry tax since the tax is a source of income for local self-governing bodies. The government is awaiting the outcome of litigation pending in various courts in the states.

The Small and medium industries council of Confederation of Indian Industry has pitched once for abrogation of entry tax, which was introduced in the state in 1976 in lieu of octroi.

The SMEs in the state have a long-pending demand of level playing field since most of the states have abolished entry tax.

"We cannot remove entry tax. A major portion of it goes to local bodies. It is must for their survival. It is true that other states have abolished entry tax but they have octroi," GP Singhal, principal secretary, state commercial tax department clarified and added, "cases are pending in courts and we are waiting for verdict."

"In other states like Maharashtra there is no entry tax," Ranjan Mimani, convenor SME council CII stressed the need for abrogation of entry tax.

The commodity sector is the worst sufferer, he added. "In case of commodity business like iron and steel, automobile etc., SMEs have to pay 10 per cent of the total value addition in form of entry tax. This increases the cost of production and makes state SMEs less competitive. At one hand we think of borderless world on the other entry tax not only bars industries to grow but it also hinders the progress," he said.

The SME council has another reason to press for its demand. "In higher an ever increasing interest rate regime, entrepreneurs have to borrow fund from market as a result the cost of funding goes up. The large industries have various routes to raise funds while SMEs have limited options. In such a scenario entry tax has aggravated the problem," Mimani further said.

He added that a number of companies from Madhya Pradesh ha migrated to tax holiday regions like Baddi and Silvasa for this reason.

While Madhya Pradesh government has a different view. "In VAT and goods and service tax regime Baddi and Silvasa will no longer be offering tax exemptions. All firms will have to pay tax across India soon," Singhal said.