'Tax benefits likely to SMEs under STPI, SEZ'

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Namrata Kath Hazarika | 27 Aug, 2010
The issue of tax benefits to Indian small and medium exporters under the Special Economic Zone (SEZ) and Software Technology Parks of India (STPI) will be taken into consideration in the tax laws reforms which are being formulated by the finance ministry, indicated the Commerce Ministry recently.

Enumerating views in this context, Rahul Khullar, Commerce Secretary said, "I think that in the STPI and SEZs, there will be assistance on the rules of the game. It will be changed. I do not want to pre-judge what the new rules will be."

Industry stalwarts have expressed concern that tax benefits for all IT firms under the STPI scheme are available till March 31, 2011, while the small and medium enterprise (SME) sector doesnot get the equitable benefit under the SEZ scheme unlike large IT firms.

Moreover, the large IT firms will be able to mitigate tax pressures arising from the expiry of tax holiday by moving into SEZs. But the small and medium enterprises (SMEs), which form the bulk of the companies registered with STPI, will be impacted adversely as they do not possess the size, scale and financial wherewithal to avail the benefits of SEZ.

Further, on the concern of the SME sector, Khullar said that the SEZ scheme is not "SME-friendly" and is thus "impractical." The industry has requested the Commerce Ministry to review the policy regime and give assistance to the small and medium enterprises (SMEs) in the country.

The industry has also requested the government take a move towards announcing parity of incentives between the STPI and the SEZ schemes.

Currently, the government is also in the process of introducing the Direct tax code (DTC) regime by next year which will have a new simplified tax code. The new DTC will replace the decades-old Income Tax Act. The government has revised the initial draft of DTC twice to build a consensus among states on all the contentious issues.

Moreover, Commerce Minister, Anand Sharma recently also assured Indian exporters that the government is sensitive to the concerns of SEZ producers and developers and added that the Department of Commerce has taken up the issue of SEZ developers with the Finance Minister and the Prime Minister.

Opining further, Khullar also assured that the concerns of SEZ developers in the Direct Tax Code (DTC) would be taken up in a fair and an equitable manner in the revised version of DTC.

Further, he said, "...if you are a SEZ or STPI and you had taken a commercial decision on the basis of some legislative promise which has been carried further. The question arise, Have you been treated fairly? That's where I think what is a prospective taxation which lies ahead in future."

"Let that come into law at first. Let the department of revenue bring that in the Parliamentary discussion. Once it becomes a law we are all liable to take our decisions. I think, beyond that at this point of time to speculate about what the prospective tax laws should be or would be is bit difficult to answer," he added.