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CHENNAI, March 28

AFTER an initially guarded reaction when industry and trade associations welcomed the Tamil Nadu budget as one that clearly outlines the State's move to a value-added tax regime, industry in the State is realising that the budget may be harsher than what it appeared at first.

Industry sources, without wanting to be identified, pointed out that bringing a lot more items under entry tax will affect a whole lot of industries in the State.

In the budget presented on Wednesday, the Government announced its intention to include in the list of goods liable for entry tax items such as motor spirit, lubricating oils, bitumen, aluminium, asbestos cement sheets, HDPE granules and PVC resins and PVC pipes, HDPE/PP woven fabrics, and iron and steel.

The sources pointed out that most of the light engineering units in the State would be affected by the proposed levy of entry tax on items like iron and steel. They feared that the budget would not aid in the revival of the manufacturing sector, which was what the industry was hoping for, especially since the Jayalalithaa Government had even mentioned that it would come out with a specific policy for the manufacturing sector.

The worst hit appears to be the cement industry, on which the Government has proposed a higher sales tax of 24 per cent if cement is sold at more than Rs 135-145 per bag (inclusive of sales tax).

According to sources, some companies may even stop dispatches of cement to the stockists till the position on this differential taxation based on price is clear. What this differential taxation means is: the sales tax on cement will go up from the present rate of 16 per cent to 25.2 per cent, including the five per cent infrastructure surcharge, if cement is sold above the price specified by the government. While this is seen by many as a move by the Government to force the cement manufacturers to reduce prices, some experts even wonder whether the Government can take upon itself the role of a price fixing authority.

Besides, the tax on subsequent sales on cement means that another 5.25 per cent will be levied on such sales.

Another move of the Government that has irked some is the proposal to have a differential tax on imported goods. In the budget, the Government said that imported goods whose indigenous counterparts were taxable at 12 per cent and 16 per cent would be taxable at 20 per cent.

An industry source said that the additional resource mobilisation through these taxation measures, as also the other measures announced in the budget - widening the tax base - would bring in more revenue than the Rs 690 crore projected by the Government.

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