Following a move by the Sales Tax Department in Kerala to increase the sales tax rate from 4 per cent to 12.5 per cent on certain ayurvedic products by classifying them as cosmetics, many of the ayurvedic companies in Kerala have decided to shift their operations to the special economic zones (SEZ) of Himachal Pradesh, Goa and Uttaranchal.

Based on the increased tax rate, the department of ST has on December 21 this year issued a notice to all the ayurvedic companies making products like hair-oil, tooth-paste, soaps and face creams asking them to pay a rate of 12.5 per cent towards sales tax. They have also been informed to clear the tax arrears with retrospective effect, said C S Sreenivasan, president of the Federation of Ayurvedic Medicine Manufacturers (FOAMM).

He said his association has approached the state health minister to intervene in this matter to save the struggling ayurvedic units in Kerala. According to him, so far they were paying sales tax at a rate of 4 per cent only.

Sree Bhagavathy Madam Ayurvedic Nikethanam based in Thrissur is the first company set to move its unit to Baddi in Himachal Pradesh, to avail the benefits of the SEZ.

“Our new facility in Baddi is scheduled to be commissioned in March 2010. We have set up our own Unit and established new GMP facilities there. We will be the first Ayurvedic Unit from Kerala to start functioning from Himachal Pradesh,” said Dr E K Shaji, general manager of Sree Bhagavathy Madom. But he refused to divulge the total investment incurred for the project.

He said in Himachal Pradesh, a new unit is getting 100 percent central excise exemption for ten years and an income tax holiday for five years. The unit is also entitled for a 75 per cent subsidy for transportation for finished goods and a 15 per cent subsidy for their investments in plant & machinery.

Apart from tax rate problems, there are myriad factors like labour problems, availability of raw materials and cost of production that force the indigenous healthcare products manufacturers to migrate to other states to tap the state government incentives being offered to attract the units. Establishment of tax free zones has already turned the Himachal into a hub of pharma and other industrial units.

Recently, Vaidyaratnam Oushadhasala from Thrissur has established its manufacturing unit in Pollachi in Tamil Nadu.