Punjab needs to rectify the errors of the previous industrial policy to become self sustained engine of growth and become a hub of industrial production
It may sound a bit rich that the Punjab Industrial and Business Development Policy-2022, aims to transform the state-industrial sector as an export hub. Unfortunately, notification no.4888 dated 17th October 2018, under the Punjab Industrial and Business Development Policy 2017, which excluded hundreds of industries having Inverted Duty Tax Structures and Export-Oriented Units from incentives on Fixed Capital Investment(FCI), has been repeated and presented as an annexure-A with clause no.12.26 in the new industrial policy also. Thus the whole exercise to frame and notify the new industrial policy dilutes the purpose of fetching new investment in the state, which needs to be revisited and the error to be corrected in the said clause of the new industrial policy. The repeated error of the previous policy once again has been embodied in the new industrial policy stating that the incentive shall exclude any refunds entitled to be obtained by the taxpayer for any reason including on exports, or deemed exports. It narrates that any refund from the central government is to be adjusted against the payment of state incentives, which principally deprived the right of industry’s falls under the Inverted Duty Tax structure under which the excessive amounts of tax are being paid on inputs and the same is refundable legally, therefore it is not justified to adjust the central government refund against the payment of state incentives.
Suppose any industry that pays 18 % GST on input raw material and is liable to pay 12 % GST on the final product, falls under Inverted Duty Tax Structures and is entitled to avail of the input tax credit from the central government. The Export-Oriented Units are also entitled to a full refund of input GST from the central government and are being deprived of the state incentives because of the operation of this corrosive clause. The big question is how a state government can restrict incentives to industries having an inverted tax structure and export-oriented units entitled to get refunds. This clause does not permit to not even a single unit in Punjab covered under an inverted duty structure to get an incentive on FCI. Hence, the Punjab government can not exclude these particular industries from incentives.
Against notification no.4888 dated 17th October 2018 under the previous industrial policy, which is now hurting as Annexure-A with clause no.12.26 in the new policy, earlier the industries forwarded a representation to the Chief Minister on 21st January 2021. While an interface to this representation, the Policy Implementation Unit of the Department of Industries and Commerce forwarded memo no.7736-7737 on 23rd April 2021, to the taxation commissioner and GMs of the District Industries Centre(DIC). In this memo, the department admitted the error in the said notification no.4888 and agreed to work out the minimal 2.5 % incentive on the FCI to the industries having an inverted duty tax structure and export-oriented units.
Instead of revisiting and correcting the unjustified objections in the previous policy as well as the same being carried out in the new industrial policy also excludes incentives to the industries. Since 2018, hundreds of applications have still been pending to avail incentives under the previous as well as new industrial policy. Finally, the concerned accountable officials should understand that repeated error in policies never meets the purpose for the public good as well as for the economy. To make the Punjab Industrial and Business Development Policy-22, a big success, Chief Minister Bhagwant Mann had made all the right noises about creating a conducive environment for the industry but needs to back it with prompt interventions on due incentives to the industries. However, before framing the new industrial policy the concerned officials organised various meetings of the Chief Minister with stakeholders to incorporate their feedback. Despite all the exercises the differentiator is missing in the policy because the senior officials are adopting a lackadaisical approach towards the industries that’s why the error is repeated again and again.
To strengthen and make an accountable and time-bound incentive system there is a need to re-engineer the processes of core departments like Punjab Industries & Commerce, Taxation and Finance Department. On priority, it is needed to make the incentives extremely simple and industry-friendly and to minimise the complex riders at all levels of processing. Denial or delay in incentives could affect competition and consequently constrain economic growth.
At its current scale of operations, the Industry and Commerce Department integrated window system and unified regulator should be effectively applicable to incentives for all upcoming investment projects and existing industrial units in the state. Therefore, the officials should perform their intended roles effectively to meet the state’s emerging economic challenges and expectations.
The Way Forward:
There is a pressing need for the Department of Industries and Commerce, Taxation and Finance department to revisit Annexure- A, having clause no 12.26 in the new industrial policy and correct the admitted error to work out the minimal 2.5 % incentive to industries having inverted duty tax structure and export-oriented units on fixed capital investment under the previous and new industrial policy.
At various levels, Punjab Industrial and Business Development Policy 2022, needs to envisage a simplified, time-bound and technology-driven incentives approval with the minimal human interface with due diligence to nurture a competitive industrial ecosystem in the state as a job engine.
(The author is Vice-Chairman Sonalika Group, Vice-Chairman of Punjab Economic Policy and Planning Board, and Chairman of ASSOCHAM Northern Region Development Council)
