JAMMU, Aug 31: A proposed amendment to the GST Linked Incentive (GSTLI) scheme, shifting from Gross GST to Net GST and introducing capping, has caused significant concern among new industrial units in Jammu and Kashmir (J&K). The potential reduction or elimination of incentives under the new framework is raising fears of financial instability and possible closures for several industries in the region.
The proposed change from Gross GST, which includes total GST paid along with input tax credits, to Net GST, which covers only the GST paid in cash, is expected to have severe implications for industries, especially those operating under an Inverted Duty Structure. Industries such as pharmaceuticals, which face higher input taxes and lower output taxes, may lose their entire GSTLI entitlement. This shift could severely impact cash flow and the overall viability of these businesses.
The New Central Sector Scheme (CSS) for Industrial Development of Jammu & Kashmir, implemented on February 19, 2021, was designed to spur industrial growth by offering significant incentives, including GSTLI. This scheme allowed for a reimbursement of GST paid by eligible new units, aiming to cover up to 300 percent of the value of investment in plant and machinery or infrastructure over a 10-year period.
Recent discussions by the Steering Committee, responsible for overseeing the GSTLI’s implementation, highlighted the need to introduce a cap on eligible investment values to mitigate potential financial risks. The Steering Committee raised concerns about the absence of a cap for units with investments exceeding ₹50 crore, which could lead to substantial financial exposure.
To address these concerns, the Steering Committee proposed modifying the GSTLI calculation from Gross GST to Net GST. This change could drastically lower the incentive values, particularly for industries like pharmaceuticals, which often face significant input tax burdens and limited cash payments for GST.
For example, a pharmaceutical unit with an investment of ₹45 crore in plant and machinery, which previously qualified for₹135 crore in GSTLI over 10 years, could see its incentive reduced to zero under the new system. This would result in a loss of ₹125.40 crore, creating severe cash flow challenges and potentially jeopardizing the unit’s operational viability.
J&K’s industrial sector already grapples with high operational costs due to logistical hurdles, a shortage of skilled labor, and elevated service costs. The anticipated reduction in incentives exacerbates these challenges, potentially making it even more difficult for businesses to sustain operations in the region.
S. Vikramjit Singh, Commissioner Secretary of Industries & Commerce for the J&K Government, stated that no final decision has been made regarding the capping of incentives, as the matter is still under review by the Apex Committee. The committee’s next meeting is expected to be delayed until after the conclusion of the ongoing assembly elections.
In the meantime, J&K’s industrial units are closely watching the developments, hopeful that the final decision will support their growth and bolster their contribution to the local economy.