The most important or perilous areas which are greatly wedged under the GST is the tax incentives granted by state governments to companies making investments in the respective states. Under the industrial promotion schemes such of the benefits are offered by the State Governments. It is also called PSI Package Scheme of Incentives. The main purpose or plan of this scheme is to attract or catch out the investments in the State for industrial development and the most important one is to promote employment generation.
PSI benefits are granted by the states as subsidies based on the quantum of taxes paid (i-e. VAT and CST) by the corporations to the State Governments on their industrialized activities and most important thing, this is for the specified period of time. Such of the incentives are subject to a maximum ceiling limit based on total capital investments made by these companies.
The amount of the incentives is based on the amount of the indirect taxes paid to the State Government. This is the important point to investigate that how these inducements would get impacted under the GST scenario.
It will be clarified by this example, the government made a promise to the company that 100% tax (VAT/GST) which is paid by the company will be refunded to the company as the subsidy for a time span of for suppose fifteen years. The company will get the prescribed amount per year. Because the company has paid 20% tax on local sales and 80% tax on interstate sales. The company also paid GST so, when the government will calculate the incentive the GST will also be calculated.
These incentives will be impacted under the GST because the tax rate will be lower and because of the interstate sale, the tax rate would not be impacted.