Concerned over the status of tax holiday zones after the implementation of goods and services tax (GST) in the country from April 1 next year, the drug manufacturers in the tax holiday states like Himachal Pradesh and Uttarakhand have asked the government to clarify the status of the tax holiday zones like Baddi in Himachal Pradesh and Uttarakhand after the GST implementation.

Federation of Pharmaceutical Entrepreneurs (FOPE), an association of hundreds of pharma units in the tax free zones in Himachal Pradesh and Uttarakhand, has asked the government to clarify the status of tax holiday zones after the GST implementation in the country. In his budget speech, finance minister Pranab Mukherjee has announced the roadmap for the implementation of GST in the country from April 1, 2010. "We have urged the government to clarify how it will take care of the tax holiday zones once GST comes into effect," a FOPE spokesman said.

A large number of drug units from different parts of the country have migrated to hilly states like Himachal Pradesh, Uttarakhand, J&K and Sikkim after the then BJP-led central government headed by AB Vajpayee announced these states as tax free zones in 2002 to give a boost to the economy of these industrially backward states. Though initially the migration of drug units to these zones was slow, it picked up momentum in the year 2005 when the government announced the MRP-based excise collection to increase revenue collection and also as a deterrent to higher MRP to medicines.

Now the drug manufacturers of these tax free zones are concerned over the fact that the government did not mention any thing about the continuation of the tax holiday in these zones after the implementation of GST. Their concern stems from the fact that several drug units have made huge investments to take advantage of the tax holiday and any interruption in the tax holiday tenure will have disastrous financial impact on these units. As per the initial government announcement, the tenure of the tax holiday is 10 years which will end in 2012. Once the tax free zones pick up industrial activity, normally the government extends the tax holiday to further give a fillip to the industry.

The GST is a comprehensive value-added tax (VAT) on goods and services. Through a tax credit mechanism, GST is collected on value-added goods and services at each stage of sale or purchase in the supply chain. GST paid on the procurement of goods and services can be set off against that payable on the supply of goods or services. But being the last person in the supply chain, the end consumer has to bear this tax and so, in many respects, GST is like a last-point retail tax.

In India, a dual GST is being proposed wherein a central goods and services tax (CGST) and a state goods and services tax (SGST) will be levied on the taxable value of a transaction. France was the first country to introduce this system in 1954. Today, it has spread to over 140 countries.