The Software Technology Parks of India (STPI) has urged the state government for reintroduction of provision of zero rated sales under Odisha VAT act for the IT (information technology), ITes (IT enabled services ) and ESDM (Electronic System Design and Manufacturing) units of the state to make them globally competitive in the draft Industrial Policy Resolution (IPR).

Earlier, under section-18, the tax rate levied was zero on the goods sold in course of inter-state trade or commerce, in course of export out of the territory of India or to a dealer having business under Special Economic Zone (SEZ), software technology park (STP), electronic hardware technology park (EHTP) and to export oriented units (EOUs).

However, after amendment in 2008, the benefits were reduced to capital goods used directly for production.

STPI feels that the provision, prior to amendment, had helped the IT and ITes units both in STPI and SEZ to minimize the inputs costs and made them cost competitive in the international market. The IT and ITes units incur major cost at the setting up a unit like building a software development block, food court, residential training facility, utilities block, networking centre, voice and data communication centre and recreational facilities and other employee utility facility and all the input material cost attract VAT or CST (central sales tax) at the time of setting up the facilities. Similarly, the IT and ITes, mostly service units, incur major expenses on maintenance and purchase of consumables for capital equipment like air conditioners, computer and peripherals, diesel generator sets and UPS to run 24/7 without any disconnection from power, networking equipment and electrical installations.

“As the exporting unit does not attract VAT (output tax), there is no clarity about how these input taxes will be calculated and claimed for reimbursements”, read a note from STPI, Bhubaneswar.

The IT exports has touched about Rs 2000 crore in 2012-13 from the state, which has an ambitious target of achieving Rs 15000 crore IT turnover by 2020. Similarly, a number of projects IT and ITes units have kicked off operation under STP and SEZ and new opportunities in the IT sector in the state is likely to open up with the recent liberalised policies of the Union government.

“In this connection, it is widely felt that re-introduction of zero rated sales under section-18 of the VAT act, 2004 (pre-amended) allowing benefits to procure all types of capital good as per their authorized operations by the ITTes, ESDM units under EoU/ STP/EHTP /SEZ as approved by Government of India and offering tax exemptions on revenue operating expenses would make the exporting units cost competitive in global market”, the note emphasized. Besides, STPI has made suggestions for inclusion of STP and Electronic manufacturing clusters (EMCs), IT/ITes, ICT and ESDM industry, in the last paragraph 7.4(a), ESDM industry in para 7.4 (b) among others in the draft IPR.

“We would like to request you to kindly forward the same to Ipicol ( Industrial Investment Promotion Corporation of Odisha Limited) with a recommendation to consider the suggestions and proposed changes in IPR for promoting the IT/ITes and ESDM sector of the state”, Manas Panda, Director (in charge), STPI-Bhubaneswar wrote to the state IT secretary. Meanwhile , the IT department has forwarded the proposals and suggestions to Ipicol for incorporation, as felt appropriate, in the revised IPR.