IT SEZ News: 24/06/09

GOVT LIKELY TO EXTEND SOPS TO EOUS, STPI BY ANOTHER YEAR
Rituparna Bhuyan, New Delhi
The Economic Times  

In a move that may both please and yet disappoint exporters, the Union finance ministry is likely to extend the income-tax benefits enjoyed by units covered by the Software Technology Parks of India (STPI) Act and those set up in Export Oriented Units (EoU) by another year — up to March 31, 2011.

An announcement in this regard is expected to be made by Finance Minister Pranab Mukherjee, while presenting the Union Budget on July 6.

While exporters will then enjoy tax benefits for another year, industry bodies had demanded an extension for five years, due to the slowing economy, and exporters across sectors are expecting more from the government.

Nevertheless, when announced, the extension will be the second lease of life for the popular export-promotion schemes.

The commerce ministry and its finance counterpart had long discussions on a year’s extension of the direct tax benefits till March 2011 in a meeting last week.

In its budget-related wish list, the commerce ministry had recommended a three-year extension of the scheme, while the industry has been asking for five.

Companies to benefit from this move include software majors like Tata Consultancy Services, Wipro, and Infosys Technologies, and hundreds of small- and medium sized IT units.

Plus, biotech companies like Biocon, textile units like Gokaldas and multicount for about 8590 percent of India’s software exports, which were nearly $47 billion in FY09.

Currently, there are 2,486 functional EoUs, which accounted for about 21 percent of our exports in 2008-09.

However, due to the ongoing economic slowdown, exports from the units dipped 15 percent in 2008-09 and stood at $35.7 billion, against $42 billion the year ago.

“This will be more of a political decision than an economic one. If the tax benefits are withdrawn, units operating under the EoU or STPI schemes will lose major export-related advantages. This could result in closure of units and job losses, something the government does not want,” said a government official close to the development.

STPIs and EoUs enjoy direct tax benefits through Section 10 (A) and Section 10 (B) of the Income Tax Act of 1961, respectively.

These provisions provide 100 percent tax deduction on export related income.

While releasing the annual supplement to the Foreign Trade Policy in April 2008, then commerce minister Kamal Nath had announced extension of the tax benefits of the EoU scheme till March 31, 2010.

Later, P Chidambaram, as Finance Minister, had allowed a similar extension till March 31, 2010.

Experts say extension of the EoU scheme for three years is the need of the hour to facilitate new investments.

“A new unit takes about a year to be built. Hence, a three-year extension would mean that additional investments would come to the EoUs,” said L B Singhal, director-general of the Export Promotion Council for EoUs and SEZs.

The EoU scheme was initiated in 1981 to boost manufacturing and exports, while STPI was started in 1991.

In fact, software companies taking advantage of the STPI scheme is thought also responsible for putting India in the global radar as a top software developer.

Indian merchandise export growth has in negative territory for the seven months at a stretch ending April 2009.

This has happened because of lesser demand from key markets in the US, Europe and Japan, which have been reeling under recession, induced by the financial crisis since mid2008.

IT INDUSTRY MEETS RAJA, SEEKS STPI EXTENSION
Surabhi Agarwal, New Delhi
The Financial Express 

A delegation of IT industry body Nasscom, which included its president Som Mittal and past president Kiran Karnik met communications and IT minister A Raja on Tuesday to apprise him of the issues at hand. Extension of the STPI scheme by another five years figured as the main discussion point, this being the major demand of the industry.

It is the trade body’s first official interaction with Raja after he took charge of the ministry. “The agenda of the meeting was to apprise the minister of the opportunities and the challenges before the industry and how we and his ministry can partner to develop a better ecosystem,” Mittal said.

While the downturn is forcing companies to cut IT spending, there is a rising danger of key markets like the US turning protectionist. Moreover STPI, which is a 10-year tax holiday for the industry, is set to end in 2010. “It was Raja, who had brought about the extension of STPI for one more year and we are hopeful that the government will look into the industry’s demand,” he said.

While Nasscom has asked for a five-year extension of the STPI, Raja was earlier quoted as saying that he will push for a three-year extension of the tax-holiday. “It will be a very positive message to the world as well to our member companies in these times of the downturn. This gesture will go a long way towards the growth of the industry,” he added.

“We also presented before the minister Nasscom’s vision 20:20, which we recently developed in partnership with McKinsey & Company along with talking about how the industry can partner the government in its various e-governance initiatives,” said Mittal. In its vision for 2020, Nasscom estimated the size of the export industry to grow to $175 billion while the Indian domestic industry is projected to record a four-fold increase in revenues to touch $50 billion.

The industry’s other demands include clarification of the SEZ policy, which saw a mention in the interim Budget and removal of multiplicity of tax on packaged software. On the rising protectionism sentiment in the US, Mittal said the team discussed with the minister how the issue could hurt the Indian IT industry. “There are several initiatives going on to tackle the issue at different levels,” he said.

 

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