In the run-up
to the Union Budget 2008-09, the Commerce and Industry Minister, Mr Kamal Nath,
has sought continuation of the income tax benefits bestowed on 100 per cent
export-oriented units (EOUs), which are set to be removed after March 31, 2009.Sources
in the Government told Business Line here that in an identical
communication to the Prime Minister’s Office and the Finance Ministry, Mr Nath
pointed out that the accent of the UPA Government was always on encouraging
manufacturing activities and augmenting employment, and on which the 100 per
cent EOU scheme precisely scores well ever since it was introduced in the early
1980s.Encouraging Manufacturing He said that the EOU scheme was meant only for
carrying out manufacturing activities within the custom-bonded area, and no
trading activity was allowed under the scheme. The Minister said the scheme
facilitated creation of dedicated manufacturing capability for exports, which
amounted to Rs 68.782 crore with exports during the last five years from EOUs
clocking more than 31 per cent growth. The net foreign exchange earning by the
EOUs is over 60 per cent. In the current fiscal, exports from EOUs would cross
the one-lakh crore mark.When contacted, the Council for 100 per cent EOUs and
SEZs, the Director General, Mr L.B. Singhal, said that among the plethora of
issues currently plaguing the units under the scheme, the most important one
affecting them is the sunset clause under Section 10B of the Income Tax Act,
under which no income tax exemption would be available for the exports effected
by the 100 per cent EOUs after March-end, 2009. Urgent need Hence there is an
urgent need for removal of the sunset clause in the forthcoming Union Budget,
as otherwise no fresh investment would flow under the scheme. “If no income tax
exemption is provided from March 2009 onwards, there is no reason why any
industrialist will set up a unit under this scheme and accept vigorous custom
bonding regulations, procedure of obtaining procurement certificate for every
import consignment or CT3 procedure for every domestic procurement and other
procedural hassles like repeated registration with customs. “No industrialist
would like to pay unnecessary cost recovery charges for the Central Excise
Inspectors posted for these units even for discharge of their sovereign
functions,” Mr Singhal said.Tax exemption Even as there is an unstated
principle that exporters should be exempted from indirect taxes, EOUs have to
bear the burden of a host of indirect levies from the State Governments and
local bodies such as purchase tax, entry tax, electricity duty, property tax,
works tax, mining royalty, water cess, education cess, mandi tax, commercial
tax and local area development tax. Underlining the importance of income tax
benefits to the EOUs, the Council said the EOUs could also be asked to
re-invest the portion of profits to make them comparable with SEZ units, so
that their basic remit of enhancing manufacturing activity and employment would
continue. As the Finance Ministry and the Ministry of Information Technology
are reportedly toying with the extension of income tax benefits to Software
Technology Park of India (STPI) Scheme, the Council said that
EOU/STPI/Electronic Hardware Technology Park Schemes are all part of the same
chapter of the Foreign Trade Policy and are governed by the same
customs/central excise notification. Hence the sunset clause needs to be
removed for 100 per cent EOU scheme as well, along with the STPI Scheme, the
Council argued. – www.hindubusinessline.com