According to the latest amendment, the government has restricted the VAT benefits applicable only to sales made within the state. While the move can potentially drive away new investors from pumping money into the state, it will also force the existing manufacturers to explore investment options outside the state to survive in the market.
Reacting to the state government's move to collect more revenue by tightening the VAT rules, C.K. Mohan, General Secretary of Tamil Nadu Small and Tiny Industries Association (TANSTIA) said the decision will only cast a negative result on the state economy. “The amendment will have a direct impact on all the industries in Tamil Nadu. Most of the industrial activities in Tamil Nadu revolve around manufacturing and so it affects everyone. Automobile, foundry, textile, engineering and machinery manufacturing sectors will be the most affected,” he said.
Representing the SME industry, TANSTIA has already taken up the issue with the the commissioner of commercial tax and the related ministry. “It should be noted that an amendment will harm the industrial sector and the government alike. It will have a negative impact on the state's revenue and will invite political reactions as well. We demand an immediate recall of the amendment,” Mohan said.
The government move to takes away the 3 per cent VAT reduction for products despatched to other states will lead to more and more customers choosing markets outside Tamil Nadu, thus resulting in the closure of more industries in the state. Tamil Nadu's Spinning industry is among the most affected by this rule. “With nearly 80 percent of yarn sold outside the state, the industry is faced with tough challenges now. Our profit margins will take a huge hit. We have approached the government and we hope the authorities will soon take a favorable call to save the industry from this crisis,” K. Thirunavukkarasu, President of The South India Spinners Association (SISPA) said.
All major industrial associations in Tamil Nadu including Coimbatore District Small Industries' Association ( CODISSIA), BHEL Small Industries Association, Southern India Engineering Manufacturers’ Association (SIEMA), Indian Chamber of Commerce and Industry (ICCI) and more have already approached the government demanding an immediate recall of the new amendment.
Although the unorganized sector will be spared, the organized pumpset sector, fabrication units, automobile industry, textile sector, foundry and machine manufacturing sectors will be badly affected by the amendment.