The tax holiday scheme, announced by the Vajpayee-led BJP government at the Centre way back in 2002 to boost the sagging industrial activities in the hilly states like Himachal Pradesh and Uttarakhand, seems to have come to an end with the central government keeping mum on extending the date beyond March 31, 2010.

Though the state governments in Himachal Pradesh and Uttarakhand have been lobbying hard with the central government for quite some time to extend the deadline at least for another three years, all their noises in this regard fell on the deaf ears. The two hilly states, since the inception of the tax holiday scheme, had drawn millions in investments from a range of industries including pharmaceuticals. In fact, these states have over the years become the hub of pharmaceutical activity in the country.

Experts said that in spite of the intense political pressures being exerted from different quarters, Union finance minister Pranab Mukherjee decided to do away with the tax holiday as he looked to clean up the exemption-ridden tax regime in the run-up to the launch of a comprehensive goods and service tax (GST) regime which is proposed to come into effect from April 1, 2011.

As the government did not extend the tax holiday, any new investments in these states will not be eligible for 100 per cent excise duty holiday provided as a part of the industrial development package for the uplift of these industrially backward states. However, all investments made until March 31, 2010, will continue to enjoy the benefit for another 10 years.

The government's decision not to extend the tax holiday signals curtains for the sharp rivalry between the manufacturers of excise free zones and non-excise free zones. Ever since the government started the MRP-based excise collection in 2005, the pharma manufacturers in the non-excise free zones have been crying coarse for a level-playing field. Though the disparity between the excise free zones and non-excise free zones have come down to a large extent last year when the government slashed the excise duty periodically from 16 per cent to a meagre four per cent, the neighbouring states like Punjab and Haryana have been lobbying hard to end the tax holiday as they have lost a large chunk of their revenue due to the migration of industries to tax havens.

In fact, so disturbed was these states that Punjab had filed an SLP in supreme court asking the court to direct the central government to extend the tax holiday status to it also.