Tax Holiday Ends in HP, Uttarakhand 

Curtains have finally come down on the popular tax exemption scheme in the hill states of Himachal Pradesh and Uttarakhand that had drawn millions in investments from a range of industries such as pharmaceuticals, FMCG and automobile.

A number of companies including Hindustan Unilever, makers of Dove and Lifebuoy soaps, and motorcycle maker Hero Honda have invested in the two states.
Despite the intense political pressure and lobbying from these two states that have non-Congress governments, finance minister Pranab Mukherjee allowed the tax holiday to lapse as he looks to clean up the exemption-ridden tax regime in the run up to the launch of a comprehensive goods and service tax (GST) regime.

The governments of these states had written to the Prime Minister and finance minister and had also lobbied with the Planning Commission for an extension of these sops.

Henceforth, new investments in these states will not be eligible for 100% excise duty holiday provided as a part of the industrial development package for the upliftment of these industrially backward states.

However, all investments made till March 31,2010 will continue to enjoy the benefit for another 10 years.

This tax holiday has come under severe criticism for reasons such as misuse, flight of capital from neighboring states and skewed development in these states.
The Union finance ministry had tightened the eligibility norms for availing excise exemption in these states to ensure only companies carrying out genuine manufacturing activities enjoyed the benefit. Companies which merely labeled, packaged or did sorting instead of manufacturing were no longer eligible for the tax holiday.
The Centre incurred a revenue loss of over Rs 10,000 crore in the current financial year on account of area-based exemption that is available Jammu & Kashmir and North Eastern states.
With comprehensive indirect tax reform, goods and services tax (GST), on its way, both the Centre and states are looking at replacing the complete duty exemption with a tax refund scheme. The empowered committee of state finance ministers had also recommended replacing area-based and industry based exemptions with direct subsidy.

NEW REGIME 
Uttarakhand & HP Govts had written to the PM and FM and had also lobbied with the Planning Commission for an extension 

The tax holiday was allowed to lapse as the FM looks to clean up the exemption-ridden tax regime in the run up to the launch of GST regime 

Although new investments will not be eligible for excise sop, all investments made till March 31,2010 will continue to enjoy the benefit for another 10 years 

Economic Times, New Delhi, 01-04-2010