AP promises huge incentives to auto sector

Auto firms will get a gross VAT reimbursement on sale of finished goods for a period of 20 years or 150% of capex spent in the first 7 years, whichever is earlier

The Andhra Pradesh government on Monday unveiled a new automobile policy by offering huge tax incentives and other facilities for mega integrated automobile projects with investments of over Rs 2,000 crore of which Rs 500 crore should come by way of an ancillary base.

"It is observed that in Andhra Pradesh there are hardly any automobile companies. To attract auto majors like Honda, Hyundai and Maruti to set up their second plants in AP, a pro-active policy is needed to be formulated," the government said in its orders pertaining to the incentives and the eligibility criteria for the investments in the automobile sector. The government stated it aims to develop an automobile hub in the Nellore-Chittoor region, which is close to Chennai and Bengaluru.

Auto companies will get a gross VAT reimbursement on sale of finished goods for a period of 20 years or 150 per cent of the capital expenditure spent in the first seven years, whichever is earlier.

The other tax incentives include reimbursement of VAT on input credit for 20 years, concession in VAT rates on inputs and raw materials and capital goods at 5 per cent for 20 years, 100 per cent CST reimbursement for 10 years and no entry tax or octroi to be levied on items procured by the investors. Besides, the companies will get a reimbursement of Rs 0.75 per unit on power costs for five years besides reimbursement of stamp duty and transfer duty on land.

The government has also offered 24-hour uninterrupted power supply, 4-lane roads connecting the plant to the nearest national highway, and single window clearances within a specified period of 60 days among other things.

"The mega integrated automobile project will mean automobile projects that will have engine plant, press shop, body shop, transmission line, assembly line, paint shop etc either on its own or in consortium or joint venture in the same location with investments over and above Rs 1,500 crore and which will bring ancillary units of a minium of Rs 500 crore within three years would be eligible," it said.

The AP government had achieved the first break in attracting a major automobile investment in September when bike manufacturer Hero Motocorp signed an MoU to set up its plant near Tada in the Nellore-Chittoor region. A similar set of incentives was offered to the company at that time.