EoU tax break extension unlikely

The 10-year income-tax holiday, which 100 per cent export-oriented units enjoy under Section 10B of the Income Tax Act, 1961, is unlikely to be extended beyond March 31, 2009, when these benefits are to expire.

This is despite a strong recommendation to continue EoU tax breaks by a committee set up by Prime Minister Manmohan Singh under V Krishnamurthy, chairman, National Manufacturing Competitiveness Council.

"The finance ministry is not in favour of extending tax breaks as a matter of principle, so there is unlikely to be an announcement in the Budget," a finance ministry official said.

This effectively means that the benefit will automatically cease from April 1, 2009. A similar tax break under Section 10A of the I-T Act is available to Software Technology Parks of India.

A recent finance ministry-sponsored study by think tank Indian Council for Research on International Economic Relations had also recommended extending EoU tax breaks.

EoUs enjoy tax breaks for 10 years. The scheme came into force in 1981 and 2,300 units have come up since then. The finance ministry had imposed Minimum Alternative Tax on 100 per cent EoUs in last year's Budget.

However, a proposal for EoU tax breaks by the commerce ministry is pending before the cabinet.

EoUs differ from special economic zones principally in the level and time-period of tax breaks to which they are entitled. SEZs get income-tax breaks for 15 years and no sunset clause has been stipulated yet. They are also exempt from sales tax and excise, among other local imposts.

The Export Promotion Council for EoUs and SEZs projects EoU exports to cross Rs 125,000 crore (Rs 1,250 billion), roughly 19 per cent of total exports for the year, for 2007-08.

"EoU exports have been increasing at 30 per cent  in the last decade and at over 31 per cent in the past five years," said L B Singhal, director-general of the council.