The small scale sector must be allowed a weighted deduction of 125 per cent of the salary and wages paid by them from income.

If this is not feasible, income to the tune of Rs 2 lakh if reinvested, should be exempted from tax in recognition of its potential in employment generation next only to agriculture and as an encouragement to enable the sector qualitatively improve in facing international competition, according to Mr S. Rajagopal, President, Federation of Associations of Small Industries of India (FASII).

He said the post-reform period has experienced growth, marking significant gains in automobiles, pharmaceuticals, food processing, general engineering, chemical and white goods etc. However, the growth has been around metros only and has not percolated to the interior.

There is a wide gap, he observed, in the levels of awareness among entrepreneurs on the need to raise the quality of products.

With international competition in place, the heat is bound to make survival for many difficult.

The task on hand is huge and FASII is planning more regional and national level programmes to bring about the necessary awareness, he said.

Under the WTO regime, Mr Rajagopal said , the Government's intervention should be to the minimum to avoid corruption. The sector must be allowed to build on its strength in preparing to face the competition.

Allaying the misconception that the SSI sector did not contribute to the national exchequer in terms of excise duty, he said the duty paid on raw materials used by it was huge and there is a dire need to raise the excise exemption limit to Rs 2 crore and the limit of total clearance to Rs 5 crore, he said.

The extension of service tax to job workers is an irony, he pointed out and said this would wipe out tiny industries resulting in imbalance in the socio-economic situation. Business auxiliary services should get complete exemption from service tax, he asserted. Mr Rajagopal further referred to duplication of work in the submission of application through electronic mode where within 24 hours, the exporter is also required to submit a hard copy.

As to the value added tax (VAT), he sought rates of VAT and rules and procedures to be uniform in all the States.

He emphasised the need for exempting the SSI sector from the Fringe Benefit Tax in the light of competition in view of the advent of the WTO regime.