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Finance Ministry has ruled out extension of Income Tax holiday for STPI beyond March 2011
September, 30th 2010

The Finance Ministry has ruled out extension of income tax holiday beyond March 2011 for software technology park of India (STPI) units.

The tax breaks for STPI scheme has a sunset for March 31, 2011, implying that the tax holiday will end for units on that date.

Nasscom had recently said that there was a case for a one-year extension of the STPI scheme beyond end March 2011 as the Direct Taxes Code (DTC) is likely to come into force from April 1, 2012.

STPI has its sunset. There is no question of extending it. My biggest worry is that the effective rates of tax for STPI and hardware related units are only about 11-12 per cent. They are earning so much money for themselves and the country. We value that, but they should also pay their taxes, Mr Sunil Mitra, Revenue Secretary, said at a CII meeting on DTC here.

Mr Mitra also felt that STPI scheme should not be compared with the tax regime being provided for special economic zones (SEZs). Even now, to give SEZ developers one more year and to give SEZ units two years beyond is in my view not fair, he said.

He defended the DTC proposal to replace the profit-linked deductions with the investment linked incentives. Investments are easier for me. I have no way to monitor profits. I have ways to monitor investments. It is much smarter way. Profit linked deductions has created aberrations.

Mr Mitra also rued that sometimes incomprehensible amounts of profits are being claimed as deduction. That can only happen if these are profits earned elsewhere within the Group and brought in for deductions or exemptions. These distortions have become serious, he noted.

He also ruled out a rethink on the proposal to impose minimum alternate tax (MAT) on book profits of companies at 20 per cent rate. Mr Mitra pointed out that a MAT credit would be available for 15 years. I don't think it is unfair at all, he said.

Meanwhile, on goods and services tax (GST), the Centre has rejected the alternative model proposed by both Madhya Pradesh and Gujarat. The model suggested did not require a Constitutional amendment for GST introduction.

Our view is that Constitutional amendment is a must for GST. We have regretted our ability to accept either the suggestions of Madhya Pradesh or that of Gujarat that they communicated in a letter or the suggestion of the empowered committee, which he conveyed through a separate letter, Mr Mitra said.

Their suggestions do not enable basic features of GST, which require a seamless flow of credit to neutralise the cascading effect of taxes, he said.

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