German car maker Volkswagen, Indian auto maker Mahindra and popular Indian two wheeler maker Bajaj have recently threatened to move out their new investments from the state of Maharashtra. This is owing to the VAT (Value Added Tax or sales tax at source) set-offs issue.Maharashtra state government changed the rule for VAT set-offs last year. As per a new rule, auto manufacturers will only be provided a VAT set-offs for vehicles sold in Maharashtra. This has surely made the manufacturers at the state quite upset. This development occurs soon after Mercedes Benz planning to set up more plants in Maharashtra. All four of these have facilities in Chakan, near Pune.
Pulling out by Mahindra alone could cost the Maharashtra govt. as much as Rs 4,000 crores.
Dr Pawan Goenka, Automotive and Farm Equipment, President, said: “It is not a comfortable situation and we are actively considering moving out from Maharashtra as we plan the next phase of expansion. We had taken up the matter with the Maharashtra government and they said they are finding a solution. However, we cannot wait for long and may take a decision on new investments over the next one month.“
It may be noted that Mahindra is already in talks with other state governments for coming up with a new plant. This upcoming plant will have an annual capacity of 250,000 units. Mahindra requires almost 500 acres of land for their new Greenfield project.
Dr Goenka says, “Only 16% of our sales come from Maharashtra, while the rest is from outside the state. The new rules mean that the set-off is available only on one-sixth of our sales, thus impacting our cash flows.“
Ford has already opted out of Maharashtra and instead headed to Gujarat due to this issue.