Extension of STPI scheme short-term step: Industry

NEW MEASURES IN FINANCE BILL 2008: IMPACT ANALYSIS

The scheme was to expire on March 31, 2009. The amended Finance Bill of 2008, passed today, provides for extension of the tax benefits under sections 10A & 10B to the STPI units.

The Bombay Stock Exchange (BSE) reacted favourably with the IT index registering a 5.24 per cent gain. This was understandable as had the scheme not been extended, small- and mid-sized firms would have had to pay 33.99 per cent income tax, which would have eaten into their profits. Their margins have already been hit by an appreciating rupee and a slowdown in the US and the BFSI (banking, financial, services and insurance) sector, which accounts for a major part of their income.

The extension comes less than three weeks after Commerce Minister Kamal Nath announced extension of similar tax benefits to 100 per cent export oriented units (EoUs) by one year.

The finance ministry has estimated the revenue forgone under EoU and STPI schemes at Rs 23,806 crore in 2007-08, up by 65.48 per cent from Rs 14,386 crore in the year-ago period. An Indian Council of Research on International Economic Relations (ICRIER) study commissioned by the finance ministry had noted that while the revenue loss due to the STPI exemptions would be around Rs 8,186 crore, the foreign exchange inflows would be around Rs 353,000 crore.

Software body Nasscom President Som Mittal said: "This is a much-needed relief for SMEs and BPOs. The current special economic zone (SEZ) scheme doesn't support Tier-II and Tier-III cities. Now we can work with the government to move away from the seven metro cities to Tier-II and Tier-III cities." S Mahaliangam, CFO and ED, TCS, R Chandrasekaran, president and managing director, Cognizant, and NRK Raman, CEO, i-flex solutions, hailed the move as a "shot in the arm for the industry, albeit a short-term one".

They hoped it would pave the room for further extensions as desired by the IT industry, "which contributes in a big way to India's GDP".

V Balakrishnan, CFO, Infosys Technologies, said, "Currently, the SEZ space is not available to smaller companies, and if available, the rental cost is quite high. This will help the IT industry in the country in short and medium terms."

Some companies said the one-year period was too less to devise a long-term strategy.

Swaminathan Krishnan, senior vice-president, marketing, Sasken, said: "A mere one-year extension of tax holiday won't help the industry because it is too short a time frame for long-term business planning. It would have been helpful if the government had extended the STPI scheme for a few more years."

"The top 100 companies account for 85 per cent IT exports while the rest are made up by the other players that are more than 1,000 in number and are SMEs. Extending the scheme for one more year is only a short-term solution but the government has provided some measure of relief for SMEs," said Bharat Varadachari, partner, Global Tax Advisory Services, Ernst and Young.

OTHER DECISIONS

Agricultural produce market committees and state agricultural marketing boards will be exempt from income tax.

Companies will be allowed deduction on expenditure if they deposit taxes collected in March before the due date

Basic Customs duty on newsprint reduced to 3% from from 5%

Anti-dumping duty imposed on export-oriented units selling imported goods in the domestic market

Zero excise duty on electric vehicles, including two-wheelers and three-wheelers

Full excise duty exemption to replaceable kits used in water filters

Excise duty and countervailing duty exemption restored for projectile type of shuttle-less looms

15 per cent export duty on primary steel and HR coils

10 per cent export duty on CR coils, pipes and tubes

5 per cent export duty on galvanised steel

Basic Customs duty reduced to nil from 5 per cent on pig iron and mild steel products like sponge iron, granules and powders; ingots, billets, semi-finished products, hot rolled coils, cold rolled coils, coated coils/sheets, bars and rods, angle shapes and sections, and wires

Countervailing duty reduced to nil from 14 per cent on TMT bars and structurals used for construction of houses

Basic Customs duty reduced to nil from 5 per cent on metallurgical coke, ferro alloys and zinc

Basic Customs duty on skimmed milk powder reduced from 15 per cent to 5 per cent for a Tariff Rate Quota of 10000 metric tonnes per annum

Customs duty on butter oil, which is used for reconstituting liquid milk, reduced from 40 per cent to 30 per cent

Export duty of Rs 8,000 per tonne imposed on basmati rice minimum export price reduced to $1,000 per tonne from $1,200 per tonne

Changes in import duty rates effective from April 29, while changes in export duty rates will come into effect after the Finance Bill, 2008, receives Presidential assent