STPI, EOU Tax Sops May Stay

One-Year Extension Likely As Govt. Feels Developed Nations Yet To Recover Fully

FINANCE minister Pranab Mukherjee could give in to industry demand and extend tax benefits available to software and merchandise exports under the special schemes by another year.
The tax exemption on profits enjoyed by 100% export-oriented units (EOUs) and Software Technology Parks of India (STPIs) was extended for a year and is set to lapse on March 31,2011.
There is a view within the sections of the North Block that these tax schemes, popularly called 10A &10B, be extended for another year as recovery was yet to firm up in the developed markets.
Requests have come. They are being examined, said a government official.
The finance ministry is also not making it an issue this year as the tax benefits will anyway be done once the new direct taxes code comes in from April 1,2012.
With the new direct taxes code an year away the government could consider the demand favorably, said a government official. Export profits of units covered by the the EOU and STPI scheme are exempt from tax under the section 10A and 10B of the income tax act The scheme was to expire in March 2009 but has been extended by one year twice. The entities presently enjoying these tax benefits will have to begin provisioning for tax outgo if the tax holiday is not extended in this budget. The finance ministry has been keen on ending the tax benefit as IT companies had the option of relocating to the special economic zones and enjoy tax benefits for more time under the SEZ act. But a number of these SEZs have been either shelved of put on hold and may not go on stream soon. Moreover, relocation is easier for big IT companies and not for smaller companies which dominate the sector. The government estimated revenue foregone of.8015 crore in the 2009-10 on account of these tax sops.

Economic Times, New Delhi, 26-01-2011