SEZ exporters to get tax relief

Finance Minister Pranab Mukherjee today accepted the need to rectify an anomaly in the Income Tax Act that results in lesser tax benefits to exporters in the Special Economic Zones (SEZs).

Section 10AA of the Act provides 100 per cent deduction on export profit of SEZ units for a period of five years, but computes it with reference to the total turnover of the holding company. As a result, companies having units in SEZs as well as outside used to get lesser tax benefits.

A change in Section 10AA would require would require Parliament’s approval as it concerns income tax. Mukherjee said the necessary changes in the Act would be carried out during the full-fledged Budget, expected to be presented by a new government in mid-2009.

The present definition is directly affecting companies like Infosys, Tata Consultancy Services and Wipro, which have software development centres in SEZs as well as outside.

“It has been decided to remove this anomaly through necessary changes in the Act when the regular Budget is presented,” Mukherjee said.

The amended Section 10 (AA) will compute export turnover proportionate to the turnover of the SEZ unit and not the entire company. In fact, an empowered group of ministers headed by Mukherjee had, last year, ruled the same.

Welcoming the fact that the problem was recognised in Parliament, Export Promotion Council on SEZs director general L B Singhal said, “This anomaly should be removed through a clarification by the finance ministry and subsequently through an amendment to the Act. A similar situation was observed in cases of export-oriented units and software technology parks, but it was rectified with a clarification and a subsequent amendment to the Act in 2000.”

While welcoming the move, Nasscom requested the government to create parity with the SEZ scheme for small and medium companies through extension of Section 10A/10B of the Income Tax Act.