VAT regime ominous for Bengal steel firms

Monday, 21 April 2003, 07:00 Hrs
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KOLKATA: West Bengal's iron and steel industry is set to lose a series of financial incentives once the contentious value added tax (VAT) regime is introduced.

Opposition from a cross-section of traders has kept many states from implementing VAT from April 1, but West Bengal seems determined to get it going by May 1.

And once that happens, iron and steel firms say they will be a big loser because state Finance Minister Asim Dasgupta has said tax incentives for it could then be withdrawn.

Large and medium scale firms in this sector have been allowed sales incentives in the form of exemption, deferment and remission of sales tax since 1999.

Iron and steel firms are the only ones in West Bengal to enjoy incentives on sales tax. Incentives on sales tax in other industries were removed in 2000. As a result significant investment took place in steel in the next two years.

Official figures said the state's steel sector received investments worth 2.41 billion in 2002.

"But the good times for steel in the state might be over if the incentive is withdrawn with the introduction of VAT," according to a senior Ispat Steel official.

Once VAT comes into effect, steel firms will have to shell out a four percent sales tax, which, the industry fears, will affect the cash flow and lead to an increase in non-performing assets.

"In such a scenario, remission, exemption and deferment of tax on value addition will be negligible," said an industry source.

If introduced, the changes will hit small and medium units more as the bigger ones can then order their steel directly from plants by paying two percent central sales tax.

Steel firms have already petitioned the West Bengal Industrial Development Corporation (WBIDC), the state's nodal agency for industrialisation, to "consider carefully the consequences" of removing the present fiscal incentives.

WBIDC director Gopal Krishna has assured a steel delegation that the government could work on an alternative incentive plan.
Source: IANS
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