Exporters have proposed switching over to a turnover tax in lieu of income tax to reduce their administrative burden. In its pre-budget memorandum to the finance ministry, exporters body Fieo said that such a tax will dispense with all other direct taxes and exemptions including depreciation.

The tax can be collected through banks at the time of receipt of foreign exchange to plug any leakage and will reduce cost of collection. Fieo also recommended incorporation of investment-linked tax incentives for the labour intensive MSME sector to enable investment in capital machinery and equipment. It further suggested enhancing the depreciation rate from 15% to the previous level of 25%.

To provide competitive credit rate to exporters, Fieo president A Sakthivel said the rate for export credit should be fixed at 6% without any link to BPLR. Similarly, export credit in foreign currency may be made available at Libor (the international benchmark for fixing interest rates) plus 100 basis point which was in existence prior to the liquidity crisis.

He added that exports were entering a crucial phase in 2010-2011 as uncertainty still loomed large over global trade on account of withdrawal of stimulus by countries which was propelling growth in the past. Fieo also reiterated its demand for exemption from service tax for both exporters as well as export promotion councils and other export organisations.