Sikkim fears loss of income tax benefits

RAJEEV RAVIDAS , TT, 07 Feb 2020, Gangtok: Union finance minister Nirmala Sitharaman's assertion that the central government intends to do away with all income tax (IT) exemptions in the long run has given rise to fears that Sikkim, too, would risk losing the privilege enjoyed by the vast majority of its residents.

"The Union finance minister, after presenting the budget speech, had said that the Centre wanted to do away with all IT exemptions in the long run. This would mean we, too, could be deprived of the exemption," said Passang Sherpa, an activist and the coordinator of Iam371F, a pressure group.

Sikkim residents were exempted from paying income tax in 2008 following the repeal of the Sikkim Income Tax Manual, 1948, and the enforcement of the Income Tax Act, 1961, in the state.

One of the primary reasons for granting the concession was the fact that old laws like the tax manual are protected by Article 371F of the Constitution, which provides special status to Sikkim.

According to Section 26AAA of the Income Tax Act, Sikkimese individuals who hold either the Sikkim subject certificates or certificates of identity do not have to pay taxes on any income which accrues from any source in the state or by way of dividend or interest on securities. Without mentioning Sikkim, the finance minister had said the Union government eventually wanted to re- move all income tax exemptions.

"So many exemptions are difficult for the administrators.... We wanted to achieve two goals -- simplify and reduce income tax. Gradually in the long run, we will be removing all exemptions," Sitharaman had told the media immediately after presenting her second budget on February 1.

Sherpa accused the Sikkim government of being ignorant about the implications of Sitharaman's statement and cautioned against diluting any privileges enjoyed by the state by virtue of the special constitutional provision.

"The Sikkim government appears ignorant on the matter or is not bothered about the Sikkimese people. The state government must take up the issue with the Centre so that the exemption is not re- moved," he said.

The activist also claimed that start-ups in Sikkim cannot enjoy the benefits of the budget announcement of a five-year tax holiday on employee and stock ownership plans for such entities in the absence of any law governing companies in the state.

"Young entrepreneurs from Sikkim cannot take ad- vantage of the tax holiday since neither the old Registration of Companies (Sikkim) Act, 1961, nor the central government's Companies Act, 2013, are in operation here," he said..