Nothing is permanent and specially not tax holidays as Volkswagen, Mahindra and General Motors has just realised. The Government of Maharashtra has withdrawn a sales tax exemption which they had offered to encourage investment in the Chakan Talegaon belt. The three companies had cumulatively pumped in Rs. 10,000 crore to setup their facilities in the region and had got various incentives to do so. However the Government has now back tracked and abolished the benefits, which seems a bit unfair.

“We decided on Maharashtra as the location for our plant and headquarters for the Volkswagen Group India for several reasons. Both sides agreed on commitments-we to develop industrial infrastructure and to create jobs for the region, the government to support our investments with tax incentive in the starting period. On this basis, we calculated our business plan and decided on Maharashtra. As we have achieved our commitment, we have no reason to believe that our partners from the government will not fulfil their promise,” Volkswagen India head of communications, Alexander Skibbe said.

The Maharashtra Government had offered the above automakers to claim double VAT set off benefits. Now the new rules state that the companies can only claim VAT set off if the car is sold in Maharashtra and not elsewhere. They also need to pay 2% CST if the car is sold outside of Maharashtra. This has led to high confusion amongst automakers who had calculated their project costs considering the incentives offered by the state. With only 15% sales being in Maharashtra, car makers are set to pay alot of VAT for no fault of theirs. Had they chosen to setup their factories in other states, they still would have got the benefits but for a longer time.