Jaya opposes incentives to Telugu states

In a move that could pour cold water on the twin Telugu states' attempt to get tax incentives, Tamil Nadu Chief Minister J. Jayalalithaa has urged the Centre to be cautious while deciding on area-based tax incentives to Andhra Pradesh and Telangana.

In a letter written to Prime Minister Narendra Modi, she said the incentives should be given in a way that would not render neighbouring states uncompetitive for investments.

According to Jayalalithaa, area-based tax incentives run counter to one of the basic thrusts of economic reforms -- a rational tax policy that is neutral, encourages a common market in the country, rewards competitive efficiency, and exploits comparative advantage. She feels that there could be flight of capital from Tamil Nadu.

"Your government must exercise the greatest care in approaching this issue.
Nothing that could distort economic incentives or a level playing field and render states like Tamil Nadu uncompetitive vis a vis their neighbours, should be done. It would be highly ill-advised to offer across-the-board area-based tax concessions," Jayalalithaa urged Modi. Jayalalitha also pointed out that no such incentives were given to the three states that were formed in 2001.
Significantly, the move comes at a time when AP chief minister N Chandrababu Naidu is in Delhi to discuss with the Centre several outstanding issues, including tax incentives.