Exporters seek an alternative to Sec 80 HHC

In addition to a weakening dollar, exporters will now also have to contend with the loss of Section 80 HHC benefits.

Under this, deduction is allowed to them in respect of profits derived from export of goods or merchandise from April 1, 2005. In other words, exporters will have to pay income tax at the normal rate.

With only a year away, exporters are clamouring for an alternative to the incentive. The argument is that at least the incidence of transaction costs should be neutralised.

Exporters are handicapped by high transaction costs related to foreign trade licensing, tax procedures and the banking system.

The phase-out of Section 80 HHC of the Income-Tax Act, 1961 was a long time coming. Former finance minister, Yashwant Sinha, had, in his budget four years ago, stated that the benefits under the said Section will be withdrawn in phases beginning assessment year 2001-02.

In the first year (2001-02), 80 per cent of the export turnover was eligible for deduction from the total taxable income of an exporter. In 2002-03, the eligible amount came down to 70 per cent.

In 2003-04 it is 50 per cent and in the last year it will be 2004-05 it will be 30 per cent. From the following year, no benefits will be available.

According to Ganesh Kumar Gupta, chairman, Federation of Indian Export Organisations', incentives for exporters will have to be done away with only if a country attains a per capita income of $975. India's per capita income is less than half of this amount.

"If our exports as a percentage of world trade has to increase from less than 1 per cent to at least 1 per cent, then export incentives should be continued. If Section 80 HHC benefits cannot be continued, the government should at least give us an instrument that will neutralise the high incidence of transaction costs," Gupta said.