Jaya cautions Centre on tax incentives to AP, Telangana

According to Jayalalithaa, area-based tax incentives run counter to one of the basic thrusts of economic reforms

Tamil Nadu chief minister J Jayalalithaa today urged the Centre to see that any possible tax incentives to Andhra Pradesh and Telangana should in no way render the competitiveness of neighbouring states in attracting investments.

In a letter to the Prime Minister Narendra Modi, she said “the Andhra Pradesh Re-organisation Act, 2014, contained a substantial and significant economic package. Hence, I strongly urge you to adopt a cautious approach to the complex issue of providing area-based tax concessions for encouraging economic development in these two states.”

She added the area-based tax incentives run counter to one of the basic thrusts of economic reforms, which call for neutral and rational tax policy, which encourages a common market in the country, rewards competitive efficiency, and for exploiting the comparative advantage.

Jayalalithaa further stated the Centre must exercise the greatest care in approaching this issue. “It would be highly ill-advised to offer across the board area-based tax concessions,” she said.

According to her, any shift of investments from states with a strong infrastructure and trained manpower to other states motivated by tax reliefs alone would undo the two decade long work of rationalisation of tax structures.

Apprehending that area-based tax exemptions would lead to flight of capital from neighbouring states she termed them fiscally unviable.

She said the Centre had to forego a total revenue of Rs 9,267.50 crore through direct taxes in 2013-14, and around Rs 18,000 crore in excise duty.

“It must also be pointed out when the bifurcation of three states took place in 2000, neither Jharkhand nor Chhattisgarh, had received any such fiscal incentive,” Jayalalithaa said.