Tamil Nadu reduces input tax credit reversal to make manufacturing competitive

This was one of the various tax reductions announced in today's budget

The Tamil Nadu government today presented tax-free budget and also reduced various taxes, which will result in loss of Rs 650 crore every year for the state government.

O Panneerselvam in his first-ever budget speech as the Chief Minister of the state said that the government has decided not to impose any new taxes. Further, the government provided certain concessions to boost the manufacturing sector.  

The state decided to withdraw electricity tax on generating plants using biomass (excluding bagasse), input tax credit reversal imposed at the rate of 3% on the inter-state sale of goods will be withdrawn henceforth to make the manufacturing industries in Tamil Nadu more competitive.

Works relating to sizing of yarn will be exempted from the present levy of VAT, VAT on cardamom will be reduced from the present levy of 5% to 2%, VAT on LED lamps of all kinds and mobile phones will be reduced from the current duty of 14.5% to 5% to encourage the use of energy saving devices.

“The above tax concessions will result in loss to the exchequer to the extent of Rs 650 crore per annum,” said Pannerselvam.

This government is not increasing any taxes to mobilize more resources but will rely more on improving the administration and tightening the collection system to realize the above revenue projections,” he said.

State administration estimated revenue deficit for 2015-16 at Rs 4,616.02 crore with revenue receipts projected at Rs 1,42,681.33 crore and the revenue expenditure put at Rs 47,297.35 crore.

He said the revenue deficit is inevitable owing to increased subsidies, slow tax growth and allocations to social sectors.

Projecting a capital expenditure of Rs 27,213.17 crore, the fiscal deficit is estimated at Rs 31,829.19 crore. The major revenue streams for the state are commercial taxes (Rs 72,068.40 crore), state excise (Rs 7,296.66 crore), motor vehicles tax (Rs 4,882,53 crore).

The tax revenue is expected to log a modest growth of around 12% over last fiscal.

Panneerselvam said the share of central taxes is projected at Rs 21,149.89 crore while grants-in-aid from the central government will be Rs 16,376.79 crore.

He said the state’s net borrowings would be raised to Rs 30.446.68 crore against the permissible levels of Rs 32,990 crore.

The total outstanding debt for the state by the end of the fiscal is estimated at Rs 2,11,483 crore.