The proposed withdrawal of tax exemption to contract manufacturers in the tax-free zones of Himachal Pradesh and Uttarakhand, may prove a boon for States like Jammu and Kashmir with some units from excise-exempt zone are thinking of migrating to the notified areas of J&K. The proposal is pending before the Finance Ministry.

Even as uncertainty loomed large on restricting tax exemption only to those contract manufacturers who use own licences in the excise-free zones amid pressure from the SSI sector for a level playing field, some of the companies having units in Himachal are testing grounds of Jammu where special provisions as in the North East enable the industries to enjoy tax benefits.

"We hope to see more influx of companies into our State, depending on proposed change in the excise norms. Some companies have already contacted us, expressing keen interest in replanting their existing units in Himachal or setting up new facilities,'' J&K Small Scale Drug Manufacturers Association president S K Jain told Pharmabiz. Proximity of Jammu to the north Indian pharma hubs makes it a better option compared to the North Eastern States where also special benefits are given to the industry.

The J&K pattern, where the companies enjoy special privileges like upto 30 per cent subsidy on capital investment, with a maximum limit of Rs 25 lakh and supportive infrastructure, will now be tempting for the companies if sops are curtailed in Baddi or Uttarakhand. The ModVAT regime of reclaiming the tax has also been running smoothly in the State.

"We hope that there will be fresh rush of pharma companies into the notified areas here now. The Government is also trying to set up more notified industrial areas where special benefits are given to all new entrepreneurs including those from the pharma sector. The subsidy regime has been so beneficial to the small scale players who get upto Rs 30 on the investment of Rs one crore,'' Jain explained.

In the last one year itself, some major companies like Lupin, Medley and Madras Pharmaceuticals have opened their facilities there. At least 10 pharma companies started operations in the State. The export processing zone of Badi Brahmna and Samba are likely to be the favourite destinations now.

"Support from the authorities to the new firms was good, except that sometimes people are made to go around several times to the District Industries Centre for approval, clearance and registration. The support from the Drug Controlling authorities was encouraging,'' he said.

Many companies are waiting for the decision of the Finance Ministry on the withdrawal of the tax exemption to the third party contract manufacturers to calculate their gains and benefits in the excise free zones and take a decision on shifting their facilities to more attractive places like Jammu, it is learnt.