Govt plans more sops for 100% EOUs

The government is considering sops for 100 per cent export oriented units (EOUs), including exempting them from the payment of central sales tax (CST) in the national foreign trade policy to be announced next month.

Senior government officials told Business Standard that the ministry of commerce and industry is in favour of exempting EOUs from paying central sales tax, at par with the units in the special economic zones. There are at present around 1,700 EOUs in the country.

"Exempting EOUs from CST is being considered, because under the present system the proceeds of the CST are given to states but the re-imbursement of the CST is done by the Centre. The view therefore is that, since the present scheme is actually an outgo for the Centre, exempting the units from CST will result in a savings for the central government," an official said.

The move, if announced could reduce the export subsidy bill of the government substantially, since the bill estimated at over Rs 700 crore in 2003-04, mainly consists of the re-imbursement of central sales tax to EOUs and drawback to the textile sector.

Officials pointed out that the new zero excise duty regime introduced in the textile sector would help the government save close to Rs 40 crore this fiscal. The export subsidy bill this fiscal has already been estimated marginally lower at Rs 676 crore.

"If the proposal to exempt EOUs from CST is implemented, the export subsidy bill will come down further," an official said.

EOUs have been demanding exemption from CST on grounds that the process to claim the refund is cumbersome and takes months. After paying CST, the EOUs have to file for a refund from the development commissioner of the concerned area. The refund usually takes between seven to eight months.

The government had in the Budget this year extended the benefit of exemption from payment of central sales tax to developers of SEZs for the purpose of development, operation and maintenance of the special economic zones. The benefit is already enjoyed by units in SEZs.