In a representation to the state government, CII has alleged that the reintroduction of turnover tax and surcharge will affect the automobile industry adversely in the state by making it incompetitive in comparison with other states. Consequently, auto-component and other backward linkage industries, most of which are in small and medium sector, will be affected.

The rate of sales tax (including surcharge and turnover tax) on auto industry in the state is the highest (12 per cent each on two- and three-wheelers and utility vehicles respectively) followed by Tamil Nadu (8 per cent on two- and three-wheelers, 13.5 per cent on utilityvehicles), Rajasthan (7.5 per cent and 4.48 per cent), Uttar Pradesh (7.5 per cent and 5 per cent), Gujarat (4 per cent each), Harayana (4 per cent and 3.5/4.5 per cent) and Punjab (3.3 per cent and 3.85 per cent).

The CII said with such high tax rates in the state, the industry is finding it difficult to compete with their counterparts in other states. Apart from

purchase tax, which is directly affecting the auto manufacturers, there is a cascading effect of turnover tax and surcharge for which no set-off is allowed to its ancillaries and vendors at each stage of manufacturing.

In case of tax on purchase for manufacturing, CII said the government has increased it to 4 per cent from April 1. In addition to this, the government has introduced surcharge on sales tax and turnover tax against which no setoff is allowed. Thus, the net impact of the tax on non-declared goods has been six per cent.

The tax impact on other components like hardware and tools has increased to 6.3 per cent. "With the increasein tax to such a higher level, it is economical to buy material from outside the state, as the sales tax on inter-state transactions is only 4 per cent. This will adversely affect the local industry," CII added.

Ironically, when the set-off on tax over 2 per cent was introduced in 1995, the state finance minister had said this would encourage purchase from the local manufacturers.

On Octroi, CII has criticised the state government for taking decision on its abolition in all over the state. In order to keep the competitive edge in Maharashtra over other states, CII said that it is imperative to bring both purchase tax and sales tax in line with other states.