How Gujarat Can Avoid Textiles, Diamonds & Ceramics sectors in budget ?

In the state Budget presented in the Gujarat Assembly Tuesday, the state government gave a big push to GIFT-City project in Gandhinagar and the ailing ceramic industry in Morbi by providing necessary tax relief. It also imposed fresh taxes on luxury vehicles, industrial salt and e-commerce transactions, while fully exempting other items, like mosquito nets, sanitary napkins and adult diapers.

Presenting a Rs 245-crore surplus Budget, state Finance Minister Saurabh Patel, in the tax proposals for the year 2016-17, slashed the taxes on ceramic products. “In order to sustain the employment provided by this industry, I propose to reduce the rate of tax on ceramic products from current rate of 15 percent to five percent (including additional tax),” stated the minister, providing a relief of approximately Rs 171 crore to the sector.

Expressed relief, the ceramic industry Tuesday termed the tax reduction as its “second life”. Chunibhai Patel, secretary, Gujarat Tiles Manufacturing Association, said, “Along with the reduction of VAT to five percent, the state government has also provided relief for matters relating to C-form and pardoning of some penalties and interest. This is considered to be a very significant move by the finance department and brings relief to manufacturers in the state.”

Meanwhile, in a boost to operations at GIFT-City, Gandhinagar, a proposal has been made to exempt share brokers, who establish their registered office in GIFT-City and also operate and trade from the same place, from stamp duty payment. “We hope this announcement will encourage broking community to consider GIFT as their preferred business destination,” said Ajay Pandey, MD & Group CEO of GIFT-City.

The Budget is surprisingly silent on the diamond sector in the state where a number of units have shut down during the last one year. It mentions about Rs 500-crore allocation for the textile industry, which is also not in good shape.

The minister also exempted “frozen semen” sold in the state from the current 15 percent rate of tax. This was done to boost animal husbandry and dairy sector. Similar full-tax exemptions were also given to sanitary napkins, adult diapers, mosquito nets, pedal and cycle rickshaws, bamboo and articles made from bamboo where the current rate of tax is five percent.

However, the government went ahead and raised taxes for a few segments, including luxury cars, SUVs and two- wheeler. The tax on cars and SUV s priced more than Rs 15 lakh and two-wheeler costing more than Rs 2.5 lakh has been increased to 20 percent (including additional tax) from the earlier 15 percent. This will boost the state’s tax revenues by Rs 30 crore annually.

The state government will earn another Rs 10 crore by levying five percent tax on industrial salt. However, the biggest revenue is expected to come from sale of pan masalas — Rs 75 crore per annum — where the rate of tax has been increased from the current 15 percent to 25 percent.
An “entry tax” has also been proposed on e-commerce transactions where goods are supplied from outside the state. “This has been done to give a level-playing field to traders in the state,” Patel said. The state is expected to earn about Rs 30 crore in revenues from this tax. A bill to amend the Gujarat Tax on Entry of Specified Goods into Local Areas Act, 2001, will be introduced in the current session of the Legislative Assembly.

As the Goods and Service Tax is expected to roll out soon, the state government is planning to bring in an “amnesty scheme” for recovery of tax dues under the Sales Tax Act and the Value Added Tax Act.

The government also plans to earn an additional Rs 50 crore by increasing the rate of tax to 20 percent (from the current 15 percent) on vehicles purchased by companies, firms, institutes, associations, trusts, government departments, boards, corporations, local self governments etc (except school buses, college buses, passenger buses and goods trucks). The Budget also proposes to reduce electricity duty for hotels and restaurants to 10 percent from the earlier 15 percent and to private hospitals to 15 percent from the current 25 percent.