Trade and industry in dilemma in AP, TS

Now-a-days the registration process has become cumbersome and requires help of a consultant. Besides it is a burden on small units. For instance, a company having a paid-up capital of just Rs 1 lakh ends up paying `25,000 as fee for registration in AP. These SMEs are requesting the states and the Centre to give special concessions to shift their offices following bifurcation of state, as a special case

Bifurcation of Andhra Pradesh has all ingredients of increased flurry of economic and business hubbub in both the states but prevalence of ambiguity in administration and uncertainty in sharing of resources had significantly affected the tax base of both the states according to industry and bank officials.

The objective of bifurcation of state would be to enhance the growth of both the regions. But here it is acting differently, though both the governments are keeping brave faces, internally harping on the union government’s financial support and incentives.

Last few years, the agitation in Andhra Pradesh - pro and anti-Telangana - has impacted heavily on the bank business in terms of collections and disbursals in the state. Perhaps it may be one of the reasons for delaying budget presentation by Telagnana state.

Firms volley between AP and TS

The major disturbed issue among the industry, especially among small and medium industry, is registration of corporate offices. In both Telangana and Andhra Pradesh the issue has became a contentious one following bifurcation. While there are about 70,000 registered offices in Telangana, only about 20,000 are in residue Andhra Pradesh.

The SMEs who want to move their registered offices to Seemandhra or vice versa, in order to avoid double taxation – in AP and TS, are finding it difficult due to tedious procedures and additional fees. Most of these companies are owned by people from Seemandhra and their operations are predominantly in the residue state. The tax procedure is simple till June 2014, and any company with operations in Seemandhra region can have registered office in Hyderabad. They used to pay all statutory taxes including sales and commercial taxes in a cumulative format. Now after formation of Telangana, it is not so, these companies have to pay taxes in both the states. To avoid the double-taxation, these companies have to shift the registered office to factory location.

According to tax consultants, to transfer the registered office, the company has to submit certain documents as per the union government guidelines governed by Company Act. The procedure is to filling an ‘e-Form 18’ as stipulated by ministry of corporate affairs, they say and pay required fee.

However, the entrepreneurs say that now-a-days the registration process has become cumbersome and require help of a consultant, besides it is burden to small units. For instance, a company having a paid-up capital of just Rs 1 lakh ends up paying Rs 25,000 as fee for registration in AP. These SMEs are requesting the states and Centre to give special concessions to shift their offices following bifurcation of state, as a special case.

Interestingly, those having knowledge of these difficulties have set up registered offices in either Telangana or Seemandhra regions prior to the bifurcation, and those who did not act swiftly are facing hardships now, says a industry sources.

Coming to medium to major companies, there is stalemate as the honchos of both AP and Telagnana are all out wooing them with liberal procedures and labor laws and concessions. “But neither of the new governments can afford to lose the revenues allowing the firms to migrate”, says RoC official.

The nitty-gritty of bifurcation

The bifurcation has brought significant and dynamic changes in various spears of life, including industry and business.

The center of attraction of the states is Capital City, Hyderabad. It was declared as common capital for 10 years and agreed by both the parties thus became the reference point in the Act.

However, the revenue generated from Hyderabad will go to Telangana kitty. This has become the flash-point for the both the states, says the analysts added that this made the Andhra Chief Minister to expedite his plans on formation of Capital and to that effect his focus got diverted from building the state economically.

And this is also the issue, which is troubling the Telangana state officials, and finding it difficult to hold them. They say the business activity of Andhras owned firms has almost come to a standstill as they do not want to pay taxes to Telangana government. Interestingly, the official figures of the revenue collections are not being revealed by both the states, as yet, despite completion of six months.

During 2012-13, Hyderabad is estimated to have contributed over Rs 34,000 crore as against the total revenues of Rs 70,548 crore. This includes the contribution of citizen and companies of both of the States. Of the 44 state-level public enterprises, the headquarters of 40 are located in Hyderabad. While interacting, it is found that the tax administration needs training and skill building, as most of the technically sound persons have opted to Andhra administration creating a gap in technical staff.

In fact, most of the major and medium industries are just waiting for the Centre’s announcement of ‘special status’ to Andhra Pradesh, then one really see the drift.

Recent reports indicate that a special package will be given for the seven districts of new Andhra Pradesh comprising 90 per cent grant and 10 per cent loan, as against 30 per cent grant and 70 per cent loan in the general category.

Other incentives for the promotion of new industries and the substantial expansion of existing units may also be granted. These include 100 per cent excise duty exemption for 10 years, 15 per cent investment subsidy for plant and machinery and 100 per cent income tax exemption to all new units for an initial 5 years.

Even the Government of Telangana has staked a claim for similar package of special status, investment subsidy and IT exemption on same pattern as AP.

Telangana Chief Minister has fervently staked claim before the Union Finance Minister, “We are more underdeveloped than AP and except Hyderabad we don’t have anything else –water power and minerals”.

Industry watchers see the counter claim by Telagnana would help to retain industry interest to remain in the region and also stall exodus. FAPCCI said: "Now, the FAPCCI hopes that an excellent and good new industrial policy will be formed by the new governments in both the states and will have a conducive climate for industrial growth."