New Delhi, November 2: An expert committee constituted by the centre to study the present income-tax structure has recommended dilution of 100 per cent tax exemption available for exporters under section 80-HHC of the Income Tax Act, 1961.

The eight-member committee headed by Amresh Bagchi has, in a working draft of the Income Tax Bill 1997, also favoured scrapping of the benefits extended to 100 per cent export-oriented units (EoUs) and units set up in export- processing zones (EPZs) under sections 10A and 10B of the act.

The working draft of the bill will be placed in the winter session of parliament, beginning November 19. The expert committee has sought to restrict the exemption on gains and profits to the extent of 10 per cent for all exporters, except those in the electronics sector where the limit has been set at 40 per cent. For this purpose, section 80-HHC is proposed to be replaced by section 64 in the bill.

Under the existing scheme, EoUs/EPZs are eligible for a five-year tax holiday in a block period of eight years under sections 10A and 10B of the Income-tax Act. The committee wants this benefit to be withdrawn.

Confederation of (100 per cent) Export Units (CEU) president R Veermani said these recommendations were the "last straw in the camel's back," warning the government of serious repercussions on the working of the units in particular, and other exporting firms in general. The confederation refers the sudden withdrawal of benefits will amount to a "breach of trust" between the framers of the EoU scheme and the entrepreneurs concerned, both domestic and foreign. The body feels the five-year tax holiday is the only worthwhile benefit available to export-oriented units. "Our hopes have now been belied," the confederation said as a reaction to its often-repeated plea to the government for extending the benefit for the period during which the units remain in operation.

The confederation justifies the continuation of the tax holiday benefit on the following grounds: * Export-oriented units have a commitment to export 70 per cent of the production value

* Sections 10A and 10B provide in-house resources for research & development

* Export-oriented units have minimal or nil domestic interest

* Utilisation of inputs-imported and indigenous are totally monitored by customs/excise authorities.

* Export-oriented units are considered as "foreign enclaves"

* EoUs need to maintain optimum quality standards and induct state-of-the-art technology, capital goods and production inputs

* Unlike other exporters, EoUs do not enjoy facilities such as drawback and Modvat placing them at a disadvantage n Customs duties on capital goods are only deferred and not exempted.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.