Centre to mull separate Himalayan policy on tax

Looks set to disband NDA govt-initiated tax holiday scheme for hill states

Opposed by non-hill states and described as a “distorted policy” by union finance minister Pranab Mukherjee, the special area-based tax incentives to Uttarakhand and Himachal Pradesh may well be completely on their way out. The ten-year tax holiday, which was originally set to expire on March 31, 2013, but was practically discontinued from the end of the 2009-10 financial year, may now be as good as dead, because the the Centre does not seem to be ready to restore it even in the coming Budget.

The union government has, instead, now agreed to mull a suggestion for a separate Himalayan policy for the hill states. A recent meeting in the national capital to make an assessment of the industrial package given to the northeastern region and Jammu and Kashmir, besides Himachal Pradesh and Uttarakhand saw union industry minister Anand Sharma appreciating the suggestion made by top officials from Uttarakhand for a separate Himalayan policy. This, they said, should be in place of the tax incentives that are being seen as a “flight of industries” from states such as Punjab, Gujarat and Maharashtra.

Significantly, the finance minister, during a recent visit to Uttarakhand, had refused to make any commitment for the restoration of the tax incentives and described them as “distorted policy”. Rakesh Sharma, the state’s principal secretary (industries), who attended the meeting, said the officials had told the union industry minister that these tax incentives have done wonder in Uttarakhand, which is the top performer in terms of industrial development. “These incentives must be restored in principle,” the secretary said. “But since certain state’s are opposing them, the centre must come out with a separate mountain policy for the hill states.”

Sharma also said the industry minister appreciated the suggestion and agreed to consider it. Meanwhile, the centre has also begun talks with various states, including Uttarakhand, over the issue of tax incentives for industries. Already, several rounds of talks have been held at Delhi. During the past few years, Punjab and some other states have been opposing these area-based incentives under which income tax and excise tax exemptions are being given to attract the industries in the backward areas. The Punjab government even filed a petition in the Supreme Court against these tax incentives.

The package given in 2003 by the then NDA government led by the BJP had turned out to be a big boon in Himachal Pradesh and Uttarakhand. Some of the big names, like Tata Motors, Hero Motocorp, Bajaj Auto and Nestle, went on to set up manufacturing units in the two states. Uttarakhand alone had attracted an estimated investment of over Rs 30,000 crore during the period with its industrial growth rate shooting up to 26 per cent.