Semiconductor policy gets FinMin, Plan panel nod

Manufacturing units could find their tax liability reduced

Manufacturing units have come a step closer to getting their tax liability reducedwith the proposed semiconductor fabrication policy, which allows companies unlimited loss carry forward facility, having been approved by both the Planning Commission and the finance ministry. Only the approval from the Cabinet is awaited.

The proposal, which will make the policy attractive to foreign companies, has been pending for a few months now. The loss carry forward facility is being given after studying the information technology ministry's proposal to allow 100 per cent depreciation upfront.

The finance ministry had, however, earlier rejected the proposal on revenue consideration and said it is ready to give 33 per cent depreciation for three years. "Manufacturing units will now be able to reduce their tax liability accordingly," a senior Planning Commission official said.

The IT ministry had asked for 100 per cent depreciation in the year of investment in the project, and excise duty paid on inputs to be made cenvatable against the excise duty paid on final products like wafers and semiconductors.

North Block, however, suggested a cenvat of 4 per cent for the semiconductor units and tax benefits at par with special economic zones. It also said cenvat exemption would be given to high technology products only.

The finance ministry has also supported the IT ministry's proposal to extend the net foreign exchange positivity clause by 10 years in case of information technology SEZs. For multi-product SEZs, it said the net foreign positivity would be given for five years.

"Relaxing the positivity clause will be an additional benefit for units in export processing zones. It will also be helpful if zero excise duty is levied on imported raw materials," said MJ Zarabi, former chairman and managing director, state-owned semi-conductor complex, Chandigarh.

The IT ministry has also advocated giving income tax and excise duty benefits to units set up in Himachal Pradesh and Uttaranchal. At the same time, the finance ministry has turned down the IT ministry's proposal for research grants to be given to semi-conductor manufacturing units.

But objecting to the IT ministry's proposal, the revenue department had pointed out that 100 per cent income tax exemption for 10 years, coupled with exemption on profits ploughed back for the next five years, would have an implication of Rs 17,500 crore. Excise duty reductions would also cost the government Rs 9,000 crore.