Excise duty and other tax exemptions for attracting industries to hilly states may not go away, but could be limited to fresh investments in the Budget for 2007-08.
"Government may fine-tune the (industrial package) scheme in 2007-08 Budget by limiting tax concessions only on fresh investment. It will blunt the criticism of the scheme and check shifting of the industrial units (from plains to hilly states)," official sources said.
However, Central Board of Direct Taxes spokesperson A K Sinha told PTI that "there is no proposal in the finance ministry at this stage to withdraw tax concessions to Himachal Pradesh and Uttaranchal."
The Centre had, in August, exempted new investments made in these two states before March 31, 2010 from excise duty.
The scheme was to have expired on March 31. Besides, the government has notified income tax holiday for units in these states up to March 31, 2013.
Admitting that these tax concessions were opposed by neighbouring Punjab and Haryana, Sinha said:
"Tax concessions have been given to investors, considering geographical disadvantage of these states. The purpose of these concessions still remains to be achieved."
He said only certain pockets in Uttaranchal and Himachal like Rudarpur and Baddi have benefited from these concessions, and industrial houses are reluctant to invest in other areas.
According to finance ministry sources: "Considering the political fall-out of withdrawal of these taxes, especially in Uttaranchal where assembly elections are scheduled by March, Finance Minister P Chidambaram has ruled out any possibility of withdrawal of these tax exemptions."