High VAT rate turning away mobile makers from Odisha: ICA

State charging VAT at 13.5% on handsets priced beyond Rs 5,000, contravening recommendations of National Policy on Electronics, 2012

High VAT (value added tax) rate on mobile phones and the lack of a dedicated state policy on ESDM (electronics system design and manufacturing) sector is turning away investors from Odisha, feels the Indian Cellular Association (ICA).

The state government charges VAT at the rate of 13.5 per cent on cell phones priced beyond Rs 5,000 in contravention with the recommendations of the National Policy on Electronics (NPE), 2012 and various industry recommendations by ICA.

ICA has pointed out that the state’s reluctance to slash steep VAT rate has dimmed its prospects of emerging as a favoured destination for mobile phones and electronics goods manufacturers.

“Despite our best efforts in trying to convince them (investors) about your state's prospect and suitability for putting in investments in manufacturing, there has been a tendency to move away from high tax bearing states including yours. Further, the Odisha government has not yet come up with a dedicated policy to promote the ESDM sector unlike other states like Andhra Pradesh, Gujarat and Uttar Pradesh which has made Odisha a less competitive investment destination,” Pankaj Mohindroo, president, ICA said in a recent letter to chief minister Naveen Patnaik.

Tamil Nadu, which was not following the floor rate (on mobile phones and other data communication products), has reverted VAT to the floor rate of five per cent in its 2015-16 Budget.

“Representations have come from some sources to reduce VAT rate of high cost mobile phones. But as of now, the matter is not under the consideration of the government,” said a senior state government official.

ICA has urged the Odisha government to reconsider its policy so that the state can attract global and domestic investors in mobile handsets and electronics space.

An industry analysis done by the ICA research team shows that state tax policies and administration has a very high weightage of 20 per cent in the evaluation criteria set by the investors’ community.

The criteria has components like state policy being in sync with national policies, friendliness of tax administration, predictability and stability, grievance addressal mechanism and adoption of modern classification and valuation system. On the above parameters, Odisha has got a very low rating compared to neighbouring Andhra Pradesh, which is highly rated by the industry due to its stable and rational taxation policies.

According to ICA research, Odisha does not even figure among the top 10 states in the evaluation criteria set by investors.

The parameters include manpower, logistics, industrial relationship scenario, land, infrastructure, social infrastructure, political leadership and stability, state bureaucracy and administration, special package for ESDM sector and tax policies & administration.

ICA research after appraising Odisha on all these parameters has pegged Odisha’s score at 4.6 compared to rating of 6.1 for Andhra Pradesh.