The government is likely to extend the tax benefits on exports earnings of the information technology (IT) units, operating from the Software Technology Parks of India (STPI), to March 31, 2010 in Budget. The scheme was expired in March 2009. Under the STPI scheme, export incomes are exempted from tax under Section 10(A) for the first 10 years of operations. But as the clause is effective only till March 31, 2009, those units, which were set up after 1999-2000 , are not able to avail this benefit. As India’s export is down in February, March and April 2009 by around 33% (year-on-year ), the commerce ministry fears that withdrawal of the tax incentives on exports earnings will affect the sector badly. Total exports achieved by the units from STPI were Rs 2,02,580 crore in 2008-09 as against Rs 1,80,155 crore in 2007-08 , showing a growth of over 12%. A senior commerce ministry official said the extension of tax break to STPI units is very crucial. He said the ministry has recommended to extend the benefit by three years till 2011-12 . But, as the finance ministry wanted to discontinue the tax concession to STPI units and extend the same to units operating from Special Economic Zones, he said that ultimately , the extension might be realized for only one year till 2009-10 . The finance ministry and commerce ministry are divided on the issue. The commerce ministry wants tax break on exports from STPI should continue and such facility should not be allowed for software companies in SEZ. But, the finance ministry wanted to discontinue the STPI facility and allow the same in the SEZ. But, the official said if the facility is discontinued before a company completing 10 years of operations with tax concessions, their profitability would be affected. This will make their export pricing uncompetitive.
The government had announced its policy in 1997 to discontinue it from 2007-08 . As many companies opened their units in STPI for tax benefits, the benefit was extended to 2008-09 . As government has allowed 15 years tax holiday in SEZ, software companies have shifted their focus to start operations from SEZ only. Therefore, the IT industry wants that till a large number of SEZ facilities become operational, the government should continue the STPI benefit. The industry has demanded to extend the tax benefits for STPI units for five years. Software companies are not only major foreign exchange earners but also one of the biggest employers in the country. The extension of tax benefit is high on the priority list to boost the economic activities, another official said.
