Vidarbha’s Tax Trap: How High Levies Are Stalling Local Jobs, Farms and Businesses

thenewsdirt
1 hour ago
7 min read

Tax structures in Maharashtra have created a complex web of financial challenges that particularly burden businesses, farmers, and employment generation in the Vidarbha region.

Official data reveals significant disparities in tax collection and economic performance between Vidarbha and the western regions of the state, highlighting how existing fiscal policies may be hampering growth in this already disadvantaged area.

The region's contribution to state tax revenue stands at merely 4.2 per cent through VAT collections, despite housing 11 districts and supporting a substantial agricultural economy.

This low tax generation reflects not prosperity but the underlying economic distress that makes tax compliance increasingly difficult for local businesses and farmers.

While Maharashtra leads India in GST collections with ₹3.18 lakh crore in 2024-25, accounting for 14.9 per cent of national GST revenue, Vidarbha's share remains disproportionately small relative to its geographic size and population.

Business Operations Under Mounting Tax Pressures

Commercial enterprises in Vidarbha face higher operational costs due to differential tax rates across property transactions and business registrations. Stamp duty rates in Nagpur stand at 7.5 per cent for male buyers and 6.5 per cent for female buyers, compared to 6 per cent and 5 per cent respectively in Mumbai.

This additional 1.5 percentage point burden translates to ₹1.5 lakh extra cost on every ₹1 crore property transaction, creating significant barriers for business expansion and new establishment.

The GST framework, while designed to simplify taxation, has created particular challenges for small and medium enterprises in the region. Commercial properties face tax rates between 0.652 per cent and 3.907 per cent of capital value, substantially higher than residential properties.

Manufacturing units report difficulties with the 18 per cent GST on commercial property leases, which industry associations have challenged in courts across multiple states.

Power tariffs compound these challenges, with Maharashtra levying some of the highest industrial electricity rates in the country.

The Kelkar Committee observed in 2013 that Maharashtra's power tariffs put local industries at a competitive disadvantage compared to neighbouring states, leading to industrial migration to Chhattisgarh, Andhra Pradesh, and Madhya Pradesh.

Between 2016 and 2022, the state provided power subsidies exclusively to Vidarbha and Marathwada industries, but recent policy changes have diluted these benefits by extending them to D-Plus talukas across Maharashtra, reducing Vidarbha's allocation from ₹1,100 crore to ₹500 crore.

Corporate tax structures further burden local enterprises. The minimum alternate tax rate of 18.5 per cent significantly impacts cash flow for companies with low taxable income or losses, prompting industry associations to demand a reduction to 10 per cent.

Vidarbha Industries Association has also sought deductions for corporate social responsibility expenses under Income Tax Act provisions, arguing that current restrictions limit business flexibility.

Agricultural Income and Farmer Financial Stress

Agricultural taxation creates indirect pressures on Vidarbha's farming community through input costs and market access charges. While agricultural income remains exempt from direct taxation, farmers face substantial indirect tax burdens through GST on fertilisers, pesticides, machinery, and fuel.

The region's dependence on cotton cultivation, with 95 per cent of cotton farmers struggling with debt, makes these input cost increases particularly burdensome.

Stamp duty on agricultural land transactions ranges from 3 per cent in rural gram panchayat areas to higher rates in municipal jurisdictions. Many farming families report difficulties accessing formal credit due to documentation requirements and prefer informal lending despite higher interest rates.

The 2008 loan waiver scheme illustrated systemic challenges, with only 16.34 lakh farmers in Vidarbha eligible for relief out of a much larger farming population, primarily because land holding criteria did not account for the region's socio-economic realities.

Property tax assessments on agricultural land often reflect outdated valuations that do not correspond to actual productivity or income generation capacity.

Ready reckoner rates, used for calculating stamp duty, frequently exceed actual transaction values in rural areas, creating additional compliance burdens for farmers seeking to formalise land deals or access agricultural credit.

Cotton cultivation costs in Vidarbha increased by 250-300 per cent between 2003 and 2013, primarily due to input price inflation, while farmer incomes moved at a fraction of this rate.

Current cotton prices have dropped to ₹6,800 per quintal against farmer expectations of ₹12,000-13,000 per quintal, creating severe financial distress.

These price-cost squeezes, combined with tax and fee structures on agricultural inputs, have contributed to the farmer suicide crisis that has claimed over 60,000 lives in Maharashtra between 1995 and 2013.

Employment Generation and Industrial Investment Challenges

Tax policy structures have significantly impacted job creation in Vidarbha, with unemployment figures reaching 6 lakh registered candidates in the region out of 48 lakh statewide.

The state generates approximately 153 jobs annually against this massive unemployment challenge, indicating structural problems in economic policy implementation.

High tax compliance costs particularly burden micro, small, and medium enterprises, which form the backbone of employment generation.

While the presumptive taxation scheme allows businesses with turnover up to ₹2 crore to pay tax at 8 per cent of turnover (or 6 per cent for digital transactions), many small enterprises in Vidarbha struggle with GST registration requirements and monthly return filings.

The ₹40 lakh turnover threshold for mandatory GST registration, while providing relief to smaller businesses, creates compliance burdens for enterprises crossing this limit.

Industrial investment has remained concentrated in western Maharashtra, with approximately 80 per cent of industries located in the Mumbai-Pune-Nashik belt and only 20 per cent in Vidarbha and Marathwada combined. Despite various incentive schemes, including stamp duty waivers and interest subsidies, investors continue to prefer established industrial corridors due to better infrastructure and lower overall compliance costs.

The Package Scheme of Incentives 2013 promised stamp duty waivers for industrial units, but implementation delays have held up investments across Vidarbha districts. Applications for stamp duty waivers remain pending in district industries centres, preventing new unit establishments, expansions, and diversifications.

These administrative bottlenecks, combined with higher base tax rates, create uncertainty for potential investors.

Manufacturing employment in India declined from constituting a substantial portion of GDP growth to relative stagnation since 1997-98, with over 75 per cent of GDP increases attributable to the services sector growth. This structural shift has particularly impacted regions like Vidarbha that depend on agricultural processing and manufacturing for employment generation.

Regional Economic Disparity and Resource Allocation

Tax collection patterns reflect and reinforce existing economic disparities within Maharashtra.

The Konkan division, including Mumbai, contributes approximately 39 per cent of the state's Gross State Value Added, while Vidarbha's contribution has declined from 18.29 per cent in the 1990s to 15.96 per cent in the 2000s.

This concentration of economic activity in select urban centres creates challenges for balanced development and equitable tax burden distribution.

Per capita income in Vidarbha remains at ₹65,368 compared to the state average of ₹2.8 lakh, representing a gap of over 70 per cent.

Despite this income disparity, tax rates and compliance requirements remain largely uniform across the state, creating disproportionate burdens on economically weaker regions.

Districts like Yavatmal, Gadchiroli, Buldhana, and Washim rank among the lowest in per capita income while facing similar tax obligations as more prosperous areas.

The state's memorandum to the 16th Finance Commission acknowledges these structural imbalances, noting that seven districts contribute 54 per cent of the state's GDP while 27 districts have per capita income below the state average.

Twelve districts fall below even the national per capita income average, yet face comparable tax structures to more developed regions.

Revenue collection through various taxes shows stark regional disparities. While Maharashtra generates ₹85,000 crore annually through sales tax, with 70 per cent coming from five major cities including Mumbai, Thane, Pune, Raigadh, and Nagpur, the remaining districts contribute proportionally less despite housing majority of the state's population. This concentration raises questions about the sustainability and equity of current tax structures.

Maharashtra's emergence as India's largest GST-collecting state, with ₹3.18 lakh crore in 2024-25, masks internal regional variations in economic capacity and tax compliance ability.

The success metrics at the state level do not translate to balanced development or equitable growth across all regions, particularly in areas like Vidarbha that face historical disadvantages in industrial development and infrastructure access.

Current tax structures appear to reinforce rather than correct existing regional imbalances. Higher compliance costs, differential power tariffs, and concentrated incentive schemes continue to favour already developed regions while adding burdens to areas that need support for economic development.

The interaction between formal tax obligations and informal economic activities further complicates the situation, as many businesses in Vidarbha operate with limited formal documentation and struggle with GST and income tax compliance requirements.

The cumulative impact of these tax-related challenges creates a cycle where reduced economic activity leads to lower tax generation, which in turn limits public investment in infrastructure and development that could boost economic growth.

This pattern has persisted for over two decades, suggesting that current tax policy frameworks require fundamental reassessment to address regional development needs effectively.