Sops to STPI, EoUs not likely to be extended

Even as Finance Minister P Chidambaram said that a final decision on expiry of tax benefits to export-oriented units (EoUs) and Software Technology Parks of India (STPIs) had not been taken yet, government sources indicated that an extension of the concessions was unlikely.

Finance Minister P Chidambaram told Business Standard: "We have up to March 31, 2009, to take a view on that."

An analysis of a sample set of 328,061 companies, contained in the revenue foregone statement, shows that major tax expenditure on STPIs and EoUs in 2007-08 increased by 30.24 per cent and 30.25 per cent, respectively.

STPIs and EoUs enjoy direct-tax exemptions under Sections 10A and 10B of the Income Tax Act, 1961, which are set to expire on March 31, 2009. There are more than 8,000 STPI-registered units and 2,300 EoU units spread across the country.

Finance ministry officials added that companies should not have put up units in STPI and EoUs, knowing that the provisions were set to end by March 31, 2009. "Small players knew that the tax exemption was ending. If they knew that, why did they set up units," an official said, adding that while there was enough time till March 2009 to take a final decision, "how long can one keep feeding milk to children".

A high-power committee, headed by National Manufacturing Competitiveness Council (NMCC) Chairman V Krishnamurthy, had recommended to the finance ministry to extend the expiry of tax benefits for EoUs by another year.

Moreover, a finance ministry-sponsored study, conducted by economic think-tank Indian Council of Research in International Economic Relations (Icrier), has also recommended extension of the tax sops for STPIs and EoUs.

In Budget 2008-09, fiscal benefits to EoUs were further tightened by making sale of goods to domestic tariff area more costlier. This was done by increasing basic Customs duty payable by EoUs for sale of goods to DTAs from 25 per cent to 50 per cent. This would further squeeze profits of EoUs, on which minimum alternative tax (MAT) was imposed in last year's Budget.

The sample data showed that revenue forgone by STPIs under survey was Rs 11,880 crore, which was 20.25 per cent of the total figure of Rs 58,655 crore.

For the EoUs which were surveyed, the revenue forgone figure for 2007-08 stood at Rs 3,978 crore, which is nearly 6 per cent of the total revenue forgone of the total sample size.