Software lobby Nasscom will make a pitch to the government, seeking continuity of tax benefits on special economic zones (SEZs) in the Direct Taxes Code (DTC). It is scheduled to meet the government on Wednesday in this regard.
The government said in the DTC paper, while benefits will continue for existing units, it will be retired for units that came up after the DTC is implemented, in March 2011.
Nasscom president Som Mittal who was in the city on Monday for an executive council meeting said that the SEZ policy should be continued to encourage the balanced regional development. The DTC just simplifies things and gives the world a message that India is a country easy to do business with. Our software exports are around $60 billion and we have scope to expand it further. SEZs are one way of encouraging exports, said Mr Mittal.
He added, We created SEZs just a few years back and the policy should have continuity. SEZ is a great way to encourage investment not only in tier-I but also in tier-II cities.
It is important for the government to take a long term view on SEZs and it should be provided in the DTC on a continued basis and not grand-fathered.
He also noted that Nasscom is already preparing a paper in this regard and will present its views to the government.
At the same time, a section of the industry feels that this norm in the DTC might lead to companies setting up smaller offices closer to the city. It might also lead to small and medium enterprises looking at tier-II towns to set up offices, without being constrained by the scale that a SEZ requires.
The sizes of IT companies are large that you cant accommodate everyone is the city. It wont change the nature of business but this will be a positive move for small and medium businesses, said Mindtree CEO Krishnakumar Natarajan. According to the revised DTC draft, which will replace the Income Tax Act of 1961 after approval by Parliament, the tax exemptions for the SEZs will be provided only for existing units and not new units.
Units set up in SEZs get 100% income tax exemption on export income for the first five years and 50% for the next five years. They also get exemption on 50% of the ploughed back export profit for the next five years, after the first 10 years.