The government is likely to target open-ended tax exemptions by stipulating a time period for their conclusion in the forthcoming Budget. In an exclusive interview with ET, finance minister P Chidambaram rued the proliferation of exemptions in Indias tax laws. He conceded that the government is obliged to keep many time-bound exemptions for a period. But there are many open-ended exemptions too, he said, signalling that these would also have to be phased out, sooner or later.

Tax exemption is a complex problem. We are committed to reviewing all exemptions. That is why we have put them on our website. We want a healthy debate on exemptions. Every tax exemption has a strong constituency behind it. The question is which constituencies you can take on. We are looking at that. Our approach is simple: some tax exemptions must go. In any event, new ones must not get grafted to the tax code. Every new budget proposal from any constituency talks of an exemption. We have to resist giving new ones, he told ET.

Mr Chidambaram admitted that the SEZ policy was one big exemption. But we had argued against the tax exemptions in SEZs and lost the battle. 80 HHC, which gave an income tax break on export profits, is now back through SEZs. This exemption had been phased out.

MAJOR tax exemptions to corporates cost the government Rs 57,852 crore in 2004-05. Corporates, for instance, enjoy two kinds of open-ended exemptions. One, where the exemption is perennial. Two, where the exemption is for a finite period but companies are free to claim it at any point of time. The tax deduction available to companies under a section in the Income Tax Act known as 80 G falls in the first category.

Companies can claim a tax deduction on donations to charitable trusts and institutions under this section. Similar tax breaks are given for donations to political parties under Section 80 GGB. The second category of open-ended exemptions include tax holiday available to infrastructure service providers under Section 80 IA of the Income Tax Act.

Companies that develop, operate and maintain infrastructure facilities can claim full deduction on the profits for the first ten years. Roads, water supply, port, airport, inland waterway, water treatment, irrigation, sanitation and sewerage and solid waste management feature in the list of beneficiary infrastructure facilities. The exemption has no termination date set for it, unlike in the case of investment in the power sector, where a developer cannot commence claiming the 80IA benefit after March 31, 2010.

Similarly, a deadline has been fixed for industrial parks as well. Tax breaks are also given under a Section known as 80 IB of the IT Act to companies engaged in the commercial production or refining of mineral oil anywhere in India. A full tax holiday is available for seven years, whenever it is commissioned.