Exporters get a breather as govt shelves income-tax panel report

Wednesday, December 24 1997

Exporters get a breather as govt shelves income-tax panel report

S Venkitachalam

NEW DELHI, Dec 23: The approaching general election has forced the government to put on hold consideration of the report of an expert group that had sought to dilute the benefits available to exporters under Sections 80-HHC, 10A and 10B of the Income-Tax Act, 1961. As a result, exporters have earned a reprieve.

Sources in the commerce ministry told The Financial Express that the expert panel's working draft of the Income-Tax Bill, 1997 had not even considered and approved by the cabinet and placed before Parliament. The matter had therefore been left to the new government to take a decision, sources added.

The eight-member committee was constituted by the Central government to study the present income-tax structure and submit is recommendations. Amresh Bagchi headed the committee.

Over the years, exporters have been receiving 100 per cent tax deduction under Section 8-HHC of the Income-Tax Act.

The expert panel wanted to restrict the exemption on gains and profits to the extent of 10 per cent for all exporters excepting those in the electronics sector where the limit had been set at 40 per cent. For this purpose, Section 80-HHC was proposed to be replaced by a new Section 64 in the Bill.

Under the existing scheme, EOUs and units set up in the export processing zones 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 The expert committee recommended that this tax benefit be withdrawn.

The five-year tax holiday is the only worthwhile benefit available to the EOUs. The Confederation of Export Units hailed the government's reported move to shelve the working draft of the Income-Tax Bill and hoped that the reprieve earned by exporters would turn into a permanent cure.

CEU sources said that CEU had been pleading with the government to consider extending the benefit for the period during which the EOUs remain in operation for which it also had the commerce ministry's backing.

CEU justified the continuation of the tax holiday benefit on grounds that:

EOUs have a commitment to export 70 per cent of the production value;

Sections 10A and 10B provide in-house resources for R and D;

EOUs have minimal or nil domestic interest;

Utilisation of inputs -- imported and indigenous -- are totally monitored by customs/excise authorites;

EOUs 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, Modvat etc, placing them at a great disadvantage;

Customs duties on capital goods are only deferred and not exempted.