May 1, 2010
Consequent to expiry of Tax Holiday regime for STPI The Ten Year tax-holiday under STPI scheme was to expire by March, 2009. However, as an interim relief to the Industry, the Government extended the sunset clause in 2009 and 2010 by one year each. Thus, the tax-holiday under the scheme is available upto March, 2011. To the disappointment of the IT Industry, the Budget for the Financial Year 2010-11 was silent on the extension of the Tax Holiday beyond March, 2011. Further, extension of the scheme for such a shorter period curtails the planning for long term investment. It is high time for the Companies to look at the various other alternatives to fill up the space due to non-availability of the tax incentives from April, 2011. Shifting to Special Economic Zones (SEZ): Unlike STPI, SEZ has no sunset clause. The IT Companies for their new investments may look at SEZ Scheme. The incentives and facilities of SEZ scheme are: 1. Tax Holiday of 5yrs-100%, 5 yrs-50%, 5 yrs-50% with conditions 2. No MAT Tax 3. Service Tax Exemption 4. Local tax Exemption 5. Excise & Customs Benefit Available 6. Location specific 7. Apart from manufacturing- Service and Trading Units are also allowed under SEZ 8. Large scale infrastructure support will be available 9. No License required for imports 10. Items reserved for small scale can also be manufactured 11. Customs clearance will be at the Zone and increased level of self certification 12. Supplies to SEZ from DTA are deemed exports entitled for export benefits 13. State Governments allowed to dilute Labour Law applicability and can declare SEZ as public utility 14. Customs Duty payable (no SAD) on removal to DTA 15. External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels 16. Collect Forex for DTA sales 17. Forex Net off allowed 18. Single window clearance for SSI registration, IEC, 19. Pollution Control, Power Sanction, Labour law etc. 20. Facility of Offshore Banking Units Be a Domestic Company: SEZ option is most suitable for large companies. But the small and medium sized companies have to look at the size, scale and financial means to avail the benefits of SEZ. The rates of spaces under SEZ will usually be exorbitant. A thorough feasibility check has to be made to go in for a SEZ Unit. Otherwise, the Companies have to maintain the status of a Domestic Company and strive to grow without the tax holidays: 1. Utilize the incentives available to the maximum extent - CENVAT Credit, EPCG, Duty 2. Drawback, CST Reimbursement etc. 3. Maintain the Production Costs at low 4. Optimum utilization / management of available resources On the other hand, some of the small and mid-cap companies say that they might simply move their infrastructure to other countries, if the tax incidence gets too large in India.