IT and Communication Minister Dayanidhi Maran has lobbed back the problem of extending tax holidays for the STPI scheme to the IT industry. Indian IT industry lobby Nasscom has been demanding that the government should extend the tax holiday under the STPI scheme for another 10 years. Currently, the tax holiday scheme has a sunset clause which will expire in 2009.

Speaking at a Nasscom seminar on Wednesday, Maran said,"The IT industry should stand united and support the extension of the scheme for another 10 years. Some companies were in support of the SEZ scheme while others wanted the STPI scheme to be extended. "

The industry seems to be split between large companies that are setting up their own SEZ and medium and small companies which want the STPI scheme. It is not economical for mid and small IT companies to move to a SEZ since most of them do not have the scale or the investment capacity needed for a SEZ. Moving their new-growth options to the SEZs is also not economically viable for them.

The problem that BPO companies are facing is that most SEZs are outside city limits and hence BPO staffers would have to commute long distances. IT and BPO companies, especially the small ones, have been demanding that this large scale displacement will affect their business. Hence the government should extend the STPI tax holiday.

However, Nasscom chairman Ramalinga Raju said the entire industry favoured an extension of the benefits under the STPI scheme. "Ten years is the minimum extension that can be granted. Else, it will be an injustice to small and medium enterprises (SMEs)," he added.

Speaking on infrastructure around SEZ, Maran said, "The Prime Ministers Office has taken note of a recommendation suggesting integrated modern townships to be developed as they are imperative for sunrise industries such IT and BPO. We have to understand that infrastructure cannot be built overnight.

Mr Maran added that "such townships will not only take pressure off the large cities that are increasingly unable to cope with growing infrastructure demands. They will also help in decentralising other economic activities and spur growth of these cities. Almost all of the proposed integrated townships are to be based in tier II cities such as Ahmedabad, Bhopal, Coimbatore and Vishakapatnam, he added.