Call to review tax on IT exports

By Our Special Correspondent

NEW DELHI, APRIL 3. The industry today called on the Government to review the deadline for IT exporters eligible for tax concessions. Though it was unanimous in demanding some sort of flexibility in the deadline, the industry was divided over the manner in which the Government should review the March 31 deadline.

While the Associated Chamber of Commerce and Industry wants all applications filed before March 31 to be entertained, the National Association of Software and Services Companies has demanded a total revision of the proposal. This budgetary proposal amounted to raising the barriers for entry into software exports at a time when this industry was yet to reach maturity. Most software companies would be happy to shift base from the country to places where the operating atmosphere was more conducive, cautioned Nasscom.

According to the latest budget proposal, 10 year tax holiday will be continued only for companies registered with a software technology park (STP) or export promotion zone (EPZ) before March 31 this year and the ones registered after this date will have to pay 20 per cent tax on export income.

The industry feels the software boom, being led by small and medium enterprises, could be jeopardised if the Government persisted with its move for time bound stipulation for software exporters eligible for tax concession. It has cited reasons ranging from shortage of Government staff due to the heavy rush of entrepreneurs keen to beat the March 31 registration deadline to avail themselves of 100 per cent tax relief to creating an entry barrier for young entrepreneurs as units incorporated after the date have to pay 20 per cent tax to support its demand.

This caused an unprecedented rush during the one month left for the deadline. As against the normal registration rate of 10, industry sources say over 2,500 applications for software exporting companies were filed in the first three weeks after the Finance Minister's announcement. The Government ignored the warning sounded by the Nasscom's President, Mr. Dewang Mehta, barely days after the budget was unveiled and its machinery was caught unprepared by the deluge of applications.

According to the Assocham, ``all units lining up for securing the necessary bonding facilities from the customs are experiencing acute shortage of customs officials to handle the cases'' and this could lead to the applicants being taxed. Most of the applicants are small and medium units because almost all the 126 large software units are already registered with a STP or EPZ, it argues.

On the other hand, the Nasscom is totally opposed to phasing out of incentives as spelt out in the Union Budget and has proposed an alternative. Since the aim of the budgetary proposals are to phase out tax holiday on exports in 10 years, that is, by 2009- 10, the Nasscom has proposed that this year be taken as the cut off year and units registering in 2000-01 should get nine year tax relief, those who register in the next year should get tax relief for eight years and so on.

The Nasscom had also pointed out that the Government should drop this proposal because the revenue earning potential because of this proposal is very meagre. ``According to my calculations, only Rs. 20 crores will be collected because most software exporters will be paying the tax abroad. In the process, the Government should not have affected the sentiment. The tax should be withdrawn only in 2003 or when the rupee is made fully convertible because then exporters will get Rs. 60 to a dollar,'' said Mr. Mehta.

Represented on practically every IT-related committee set by the Centre, the Nasscom was initially convinced that the Government will relax the March 31 deadline and announce an alternative formula for phasing out tax concessions. But industry sources say the Government decided not to show any special favours to the IT sector after demands for roll-back were voiced by every section affected by some budget proposal or the other.

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