Pharmaceutical companies are rushing towards Sikkim now to set up plants as the state has been granted a 10 year tax holiday, it is learnt. The Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce has also approved a package of fiscal incentives for the North Eastern states including Sikkim.
With the new package, North East Industrial and Investment Promotion Policy (NEIIPP), 2007, Sikkim, which has been enjoying tax exemption under separate policies, will allow fiscal incentives for industries jointly with other states namely Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura.
These states were already under various fiscal incentive schemes, which have been consolidated and rationalised with the new policy. For Sikkim, earlier the concessions were allowed by the government from 2002 and the cut of date for the schemes were fixed as March 2007.
Major pharmaceutical companies like the Mumbai based Sun Pharmaceuticals Industries Ltd and Plethico Pharmaceuticals Ltd and the Ahmedabad based Zydus Cadila are setting their new plants at Sikkim, eyeing on the tax incentives declared earlier. With the new policy, the companies can enjoy 100 per cent excise duty, income tax exemption along with various other tax incentives for at least 10 more years.
"We were in a hurry to launch our operations in the state before the given deadline. But the new policy will allow us time to set up the facilities in leisure. The policy will attract more pharmaceutical companies into the state, as Sikkim has a better reach and environment than the other North Eastern states," said a source from Sun Pharmaceutical Industries Ltd.
Unlike the fiscal incentive packages launched till date, the new policy has a rather loose duration clause, allowing tax exemptions for more than 10 years. The policy defines that, 'all new units as well as existing units which go in for substantial expansion, unless otherwise specified and which commence commercial production within the 10 year period from the date of notification of NEIIPP, 2007 will be eligible for incentives for a period of ten years from the date of commencement of commercial production.'
Technically, the clause extends the period of concession to more than 10 years, say up to 2027, though it is not possible to expect benefits up to that extend due to interference of various other rules. The experts pointed out that with the duration clause, even a renovation with additional investment over the existing infrastructure of a unit might lead to extension of fiscal incentives for another 10 years. However, according to the income tax rules, the IT benefits are furnished only up to the year 2021 at present, which may limit the possibilities of the duration clause to that year.
The policy seems to be industry friendly, with much understanding on the issues faced by the industry currently, reacted industrial sources. Incentives on substantial expansion will have an increase by not less than 25 per cent in the value of fixed capital investment in plant and machinery for the purpose of expansion of capacity/modernization and diversification as against an increase by 33½ per cent, which was in the late policy.
The new policy will be an additional benefit for the pharma companies with exports to China and Commonwealth of Independent States (CIS), as the Nathula Pass, famous as the 'Silk Route of India', is expected to be fully operational by 2010. "With the full functioning of the silk route, we can save a minimum of 15 to 20 days of transition time to the CIS countries, while it takes 45 to 85 days for our consignments to reach the destinations in these places. The location of Sikkim itself is creating a synergy with our business plans," Sanjay Pai, chief financial officer, Plethico Pharmaceuticals Ltd, Mumbai told Pharmabiz.
In NEIIPP, the government has announced its plan to separately notify the ways and means to refund overflow of Cenvat credit through the Ministry of Finance. The industry could feel happy that the government has realised that the Cenvat paid on the raw materials and intermediate products going into the production of finished products is higher than the excise duties payable on the finished products, added Sanjay.
Sun Pharmaceuticals is planning to set up a plant with a total investment of Rs 500 to produce tablets and capsules for the domestic market. The company sources said that the production from this facility will commence production soon. Zydus Cadilla is setting up a formulation unit with an investment of Rs 30 crore in Sikkim. Plethico is planning to commence its Sikkim operations by 2008-09, which will support the company's CIS business and herbal drug portfolio.
A High Level, Advisory Committee and an Oversight Committee would be constituted under the chairmanship of the Union Commerce and Industry Minister with Industry Ministers of NE States as its members to establish a monitoring mechanism for implementation of NEIIPP, 2007.