Volkswagen, Mahindra, Bajaj threaten to move out new investments from Maharashtra

Volkswagen, Mahindra and Bajaj have threatened to move out their new investments from the state of Maharashtra over VAT (Value Added Tax or sales tax at source) set-offs issue. Mahindra alone, if they pull out new investments, will be costing the state government of Maharashtra to the tune of Rs 4,000 crores. All three, Bajaj, Volkswagen and Mahindra have set-up base in Chakan, near Pune.

Dr Pawan Goenka, Automotive and Farm Equipment, President, said: “It is not a comfortable situation and we are actively considering moving out from Maharashtra as we plan the next phase of expansion. We had taken up the matter with the Maharashtra government and they said they are finding a solution. However, we cannot wait for long and may take a decision on new investments over the next one month.”

Mahindra is currently in talks with other state governments for setting up a new plant which will have annual capacity of 250,000 units. They require 400 to 500 acres of land for their new Greenfield project. Maharashtra state government changed the rule for VAT set-offs last year. According to the new rule, car manufacturers will only be provided a VAT set-offs for vehicles sold in Maharashtra. This makes it difficult for car manufacturers in Maharashtra to realize their total value of incentives.

Dr Goenka says, “Only 16% of our sales come from Maharashtra, while the rest is from outside the state. The new rules mean that the set-off is available only on one-sixth of our sales, thus impacting our cash flows.” According to industry sources, Ford decided to build their new plant in Gujarat due to Maharashtra state government’s uncertainty on the matter.