Jaya fears flight of capital to AP, TS

Jaya fears flight of capital to AP, TS

She expressed concern that such sops could affect the neighbouring state and put the State at a disadvantageous state vis-à-vis attracting investments.

  • Area-based sops could render neighbouring states uncompetitive
  • Writes to PM Modi for a cautious approach on the ‘complex’ issue
  • Nature, type of sops not clearly mentioned in AP Reorganisation Act
  • Matter is left to discretion of Central government, she points out

Chennai: Tamil Nadu Chief Minister J Jayalalithaa has urged the Central government to adopt a cautious approach on the ‘complex issue’ of providing area—based tax exemptions in the backdrop of the Andhra Pradesh State Reorganisation Act, 2014.

She expressed concern that such sops could affect the neighbouring state and put the State at a disadvantageous state vis-à-vis attracting investments.

In a letter dated August 24 to Prime Minister Narendra Modi, a copy of which was released on Monday, she said that the Centre had made a term of reference to the 14th Finance Commission on making recommendations on the resources that would be available to the successor or reorganised states on the reorganisation of Andhra Pradesh in accordance with the Andhra Pradesh Reorganisation Act, 2014. The Centre had appropriate fiscal measures, including offer of tax incentives to promote industrialisation and economic growth in both the states, she said.

“Tamil Nadu does not ‘begrudge’ benefits given to the two states, but the nature and type of concessions have not been indicated in the Act and the matter appears to have been left to the discretion of the Government of India.”

“The Andhra Pradesh State Re-organisation Act, 2014, already contains 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 in the name of encouraging economic development in these two states.”

“Such exemptions run counter to one of the basic thrusts of economic reforms — a rational tax policy that is neutral, encourages a common market in the country, rewards competitive efficiency, and exploits comparative advantage. 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,” she said while expressing her government’s ’apprehensions’ on the matter.
The CM recalled there was a ‘spirited’ debate on this issue at the National Development Council meet in 2005 during the UPA regime when ‘almost all’ Chief Ministers favoured scrapping such exemptions as ‘they significantly distorted the investment decisions of companies and corporate houses.’

"It must also be pointed out that when a bifurcation of three states took place in 2000, neither Jharkhand and Chattisgarh, two of the newly created states nor the residual states of Bihar, Madhya Pradesh and Uttar Pradesh received any such fiscal incentive," Jayalalithaa said. Though, Gujarat was extended area-based exemptions for three years in the Kutch area after the earthquake in 2001, similar yardstick was not applied in the case of Tamil Nadu following the 2004 tsunami devastation, she added.

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