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Thursday, Jul 18, 2002

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Taxing problems

R. Balaji

With the shift towards uniform floor rates of tax and the Value Added Tax regime expected to be introduced in April 2003, Pondicherry, is fast losing its primary feature — low rates of tax that attracted investments by the industry. With a small area of about 50 square km, dependent on neighbouring States for its raw material requirement and market for finished goods, the lower tax rates were crucial to the industries' competitiveness. According to industry sources, the loss due to implementation of uniform floor rates of tax is estimated at about Rs 60 to Rs 100 crore. According to Mr K. Parthasarathy, Secretary, Association of Small Industries of the Union Territory of Pondicherry (ASIUTOP), the changes in the tax regime mean a shift to higher tariffs. This will mean an average rate of about 10 per cent against the present rate of about three per cent. Further, with VAT the situation could be further aggravated.

The multi-point taxation will also not be relevant for sales within Pondicherry because of the small market which results in a lack of multiple tiers of trading common to the larger markets. As such there was no down-the-line distribution. For instance, till a decade back nearly 80 per cent of the manufactured goods was sold outside the Union Territory. Now this was about 50 to 60 per cent mainly because of the establishment of larger units locally and ancillarisation. Therefore, single point taxation has been traditionally found ideal to the system here, and Pondicherry was a pioneer in implementing the system.

Further, apart from the manufacturers, traders were dependent on the customers from other States and inter-State sales.

The perception that most FMCG goods were cheaper in Pondicherry helped attract customers, and during the heydays of tax concessions, the floating population, which had been quite high, had dropped by 80 per cent, he said.

This meant not just a drop in direct sale of the FMCG products but also the incidental businesses. The Government, industry sources opine, should anticipate the impact of the proposed changes and come out with a clear plan of action on what it proposes to do. The local industries, particularly the small-scale sector is hoping for a measure of protection.

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