Monday, August 29 2005 11:17 Hrs (IST) - World Time -

Chennai: Tamil Nadu Chief Minister Jayalalitha yesterday (August 28, 2005) urged the Centre to immediately withdraw exemptions and tax holidays extended to certain states such as Himachal Pradesh and Uttaranchal, stating that the policy resulted in flight of capital from other states.

Such exemptions and incentives were a complete negation of the substance of the economic reforms, which sought to provide a level-playing field between the states, she said in a letter to Prime Minister Dr Manmohan Singh, in the text which was released to media yesterday (August 28, 2005).

"We find that certain units from Tamil Nadu are planning to undertake investments in such enclaves. This is clearly a distortion and should be ended," she said seeking Singh's urgent intervention in the matter.

On the other hand such exemption could be allowed for a short period of three years in areas affected by 'extreme and unprecedented natural disasters such as Tsunami', she said.

Drawing the attention of the Prime Minister to her June 6th last letter requesting that exemption from union excise duty be extended to Tsunami affected districts of the state as in the case of the earthquake affected Kutch area of Gujarat, she said her plea may be examined urgently and approved.

Recalling that the issue of special tax exemptions such as the full exemption from union excise duty and income tax for investments in certain states such as Uttaranchal and Himachal Pradesh was discussed at National Development Council meeting held in Delhi on June 27-28, she said most chief ministers had favoured scrapping of the exemptions.

Jayalalitha said most chief ministers were of the opinion that such exemptions significantly distorted the investment decision of companies and corporate houses thereby drastically affecting the investment climate in their own states. "All chief ministers were unanimous that these exemptions should be scrapped forthwith," she said.

Stating that the package made available to Himachal Pradesh and Uttaranchal included 100 per cent excise duty exemption on the output of new units for a period of 10 years from the date of commercial production besides income tax exemption and capital subsidy, she said no other unit in any other state could compete with this kind of disadvantage.

Even though the intention was "ostensibly" to foster investment flows into industrially backward regions of Uttaranchal and Himachal Pradesh, she said "In reality what is happening is that the new investment flows are going to those regions of these states which are close to New Delhi."

She also pointed out that the Mid-term Appraisal Document of the 10th five year plan also acknowledged that the scheme was not calibrated properly and did not take into account the possibility of flight of capital and relocation of units from other states in the country.