Himachal Pradesh fights for area-based tax sops

The Himachal Pradesh government is showing its teeth. The Union Budget did not make any mention of extending the area-based tax exemptions enjoyed by new industrial units in Himachal Pradesh and Uttarakhand, and Himachal Pradesh says it will go to court if an extension is not forthcoming. CNBC-TV18's Rituparna Bhuyan and Nayantara Rai report.

When Finance Minister Pranab Mukherjee presented the Union Budget on February 26, he did not announce an extension of the area-based tax exemptions enjoyed by greenfield industrial units in Himachal Pradesh and Uttarakhand, exemptions that will expire on March 31.

But the Himachal Pradesh government is not willing to take this lying down, since major companies like Hindustan Unilever, Hero Honda Motors and Ranbaxy have set up manufacturing facilities in these two hill states mainly because of these exemptions. The Himachal Pradesh government has already garnered support from the Commerce Ministry to extend these sops till March 2013 and threatens to move court if the extensions do not come through.

PK Dhumal, Chief Minister, Himachal Pradesh, says, "If benefits are not extended we will move court. The Commerce Ministry has already recommended extension of the benefits for Himachal. We have also spoken to the Prime Minister on this."

These tax benefits, offered to greenfield industrial projects, include full excise duty exemption for a 10-year period, and income tax exemption for a five-year period. Industrial units are also eligible for capital investment subsidy of 15%.

However, the Finance Ministry is learnt to be against extending these benefits, as it feels that these measures are prone to misuse, and lead to flight of capital from neighbouring states.