THE government may give another lease of life, albeit a short one, to 100% export-oriented units (EOUs). The income-tax sops enjoyed by these units may be extended by a year beyond March 2009. The tax exemption available to EOUs is set to end next year as the sunset clause kicks in.
If accepted, the proposal will enable EOUs to get income-tax exemption till March 31, 2010. An announcement to this effect is expected in the Budget.
The V Krishnamurthy committee, set up by the prime minister to give suggestions on helping exporters cope with the rupee’s rise, had recommended that the sunset clause be pushed back by a year. According to official sources, the one-year extension will ensure the decision on extending the tax sops for a longer term vests with the new government, which is expected to be in place by mid-2009.
EOUs and Software Technology Parks of India (STPIs) get income-tax exemption under Section 10A/10B of the Income-Tax Act. The sunset clause will set in for the exemptions in 2009. In the last Budget, the government had imposed minimum alternate tax on both EOUs and STPIs.
While the Krishnamurthy committee has recommended a one-year extension of sops for EOUs, it is silent on STPIs as the recommendations are only for manufacturing activities. However, the IT minsistry is pushing for extension of sops for software exporters as well. Ministry sources said while there might not be a blanket extension of sops for STPIs, small and medium IT units may be allowed to enjoy tax benefits.
Interestingly, the PM’s Economic Advisory Council (EAC), headed by C Rangarajan, is not in favour of extension of sops. Even last year, it had recommended the sops be discontinued.
Sources said despite EAC’s recommendations, the Centre was considering continuing with the sops for some time as there was immense pressure from industry, which is reeling under the impact of a continous appreciation in the value of the rupee. Moreover, there are concerns of the economy slowing down and an overall slump in global demand. Economic thinktank Icrier, which conducted a study on behalf of the finance ministry, has also recomended the schemes be extended.