Bangalore: Industry in Karnataka, particularly the manufacturing sector, is up in arms against the State Government maintaining that special entry tax and withdrawal of certain concessional taxes are hurting the competitiveness.

Karnataka is emerging as a high cost manufacturing base that could lead to flight of capital, and under the "heavily taxed" scenario, perception that it's an 'Industry-Unfriendly" State is gaining credibility, warned the Confederation of Indian Industry (CII).

CII Karnataka Chairman K K Swamy told a news conference in Bangalore today (Oct 25, 2004) that special entry tax on 23 items should be done away with, as it is hurting the industry. "Karnataka is the only industrialised State to have such taxation."

The levy of special entry tax coupled with tax hike on industrial inputs, diesel, information technology products, tax on machinery, tools and Export Oriented Units (EOUs), among others, would affect competitiveness of industry in the State, Swamy argued.

With the increase in tax on diesel from four per cent to 20 per cent for captive generation of power, investment in generating sets has become more expensive by 9.8 per cent in the State, he said.

Similarly, tax on machinery and tools, among others, has rendered local industry uncompetitive by eight per cent, added Swamy, also Deputy Managing Director of Toyota-Kirloskar Motor Ltd.

CII urged the Government to exempt industry from special entry tax, reinstate previous rates of tax on diesel used in captive power generation and on machinery, tools and transformers, among others.

Pointing out that sales tax rate on IT products is as high as 13.8 per cent, it called for competitive tax rates on software and hardware besides maintaining four per cent tax on industrial inputs pre-VAT (Value-Added Tax) and post-VAT and treatment of 100 per cent supplier status to EOU as deemed EOU.

According to Swamy, 62,000 units of the total 3.1 lakh registered small-scale industries in Karnataka have shut down, resulting in loss of employment of over a million. "New tax regime is spelling doom for the sector", he claimed.