The Punjab government has opposed the Union government’s area-based tax exemption scheme as the policy results in revenue erosion, job losses to neighbouring hill states of Himachal Pradesh, Uttarakhand and Jammu and Kashmir.

In letters to Prime Minister Manmohan Singh and finance minister Pranab Mukherjee, chief minister Parkash Singh Badal has alleged that fiscal concessions were unconstitutional as Article 303 of the Constitution says that Parliament can not make a law to give preference to one state over another state or make discrimination against any state in the matter of trade and commerce.

?Punjab is losing out on employment opportunities, stamp duty and growth related to industrialisation,? the letter alleged.

Badal said that Centre?s policy was against the spirit of the Constitution as it gives “undue” support to some states and distorts the natural level-playing field.

?As many as 274 units had migrated from Punjab after special concessions were given to the hill states in 2003. The flight of capital was to the tune of Rs 3,700 crore, ? said the CM.

?Punjab had hostile border with Pakistan and it deserve special concessions or at least a level playing field by not giving special concessions to any other state, said Badal told FE.

Industry department sources told FE that the special concessions in the neighbouring hill states included 100% excise duty exemption for 10 years to the units from the date of commence of production and 100% income tax exemption for the initial period of five years. Thereafter, the income tax exemption would be at the rate of 30% for companies and 25% for other than companies for five years from commencement of production.

The states also offered a capital interest subsidy at the rate of 15% of investment on plant and machinery. States like Jammu and Kashmir offered additional incentives in the form of interest subsidy of 3% on the working capital for 10 years, insurance premium to the extent of 100% on capital investment for 10 years and sales tax exemption.

Enquiries reveal that about 90% of pharmaceutical manufacturing units in Punjab had shifted to Himachal Pradesh. Some units had shifted to Uttarakhand and Jammu and Kashmir.