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Export-oriented units tax holiday may get longer
February, 19th 2008

The government is likely to give another lease of life, albeit a short one, to 100% export-oriented units (EOUs) by providing income-tax incentives to them for one more year beyond March 2009. The tax exemption available to such units is scheduled to run out next year, when the sunset clause for the scheme kicks in.

Sources said the government is now considering one more tax-free year for export units. An announcement to this effect is expected in the forthcoming Budget, they said. A recommendation for pushing back the sunset clause by one year has been made by the V Krishnamurthy Committee, which was set up by Prime Minister Manmohan Singh for suggestions on helping exporters to cope with a rising rupee. The sources said with a one-year extension a decision on extending the scheme further will vest on the new government, which is expected to be in place by mid-2009.

Export-oriented units and software technology parks (STPIs) are eligible for tax exemption under Section 10A/10B of the Income-Tax Act. In the previous Budget, the government had imposed a minimum alternative tax (MAT) on both export units and STPIs.
While the Krishnamurthy Committee has recommended a one-year extension of tax sops for EOUs, it is silent on STPIs, as its recommendations cover only manufacturing activities.

However, the IT ministry is pushing for a relief for software exporters, too. Ministry sources said while a blanket extension of STPIs tax incentives is unlikely, the small and medium units may get some benefits.

The Prime Ministers economic advisory council, headed by former RBI governor C Rangarajan, is not in favour of an extension of tax sops to STPIs. Sources said despite the councils recommendations, the Centre was considering continuing with the reliefs for some time, considering the pressure IT exporters are facing from the rising rupee. Besides, there are concerns of a likely slowdown in economy and an overall slump in global demand.

Economic think tank ICRIER (Indian Council for Research on International Economic Relations), which had carried out a study on behalf of the finance ministry, has also recommended an extension to the schemes.

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