G. Srinivasan

In the run-up to the Union Budget 2008-09, the Commerce and Industry Minister, Mr Kamal Nath, has sought continuation of the income tax benefits bestowed on 100 per cent export-oriented units (EOUs), which are set to be removed after March 31, 2009.

Sources in the Government said here that in an identical communication to the Prime Ministers Office and the Finance Ministry, Mr Nath pointed out that the accent of the UPA Government was always on encouraging manufacturing activities and augmenting employment, and on which the 100 per cent EOU scheme precisely scores well ever since it was introduced in the early 1980s.

He said that the EOU scheme was meant only for carrying out manufacturing activities within the custom-bonded area, and no trading activity was allowed under the scheme. The Minister said the scheme facilitated creation of dedicated manufacturing capability for exports, which amounted to Rs 68.782 crore with exports during the last five years from EOUs clocking more than 31 per cent growth.

The net foreign exchange earning by the EOUs is over 60 per cent. In the current fiscal, exports from EOUs would cross the one-lakh crore mark.

When contacted, the Council for 100 per cent EOUs and SEZs, the Director General, Mr L.B. Singhal, said that among the plethora of issues currently plaguing the units under the scheme, the most important one affecting them is the sunset clause under Section 10B of the Income Tax Act, under which no income tax exemption would be available for the exports effected by the 100 per cent EOUs after March-end, 2009.

Hence there is an urgent need for removal of the sunset clause in the forthcoming Union Budget, as otherwise no fresh investment would flow under the scheme.

If no income tax exemption is provided from March 2009 onwards, there is no reason why any industrialist will set up a unit under this scheme and accept vigorous custom bonding regulations, procedure of obtaining procurement certificate for every import consignment or CT3 procedure for every domestic procurement and other procedural hassles like repeated registration with customs.

No industrialist would like to pay unnecessary cost recovery charges for the Central Excise Inspectors posted for these units even for discharge of their sovereign functions, Mr Singhal said.

Even as there is an unstated principle that exporters should be exempted from indirect taxes, EOUs have to bear the burden of a host of indirect levies from the State Governments and local bodies such as purchase tax, entry tax, electricity duty, property tax, works tax, mining royalty, water cess, education cess, mandi tax, commercial tax and local area development tax.

Underlining the importance of income tax benefits to the EOUs, the Council said the EOUs could also be asked to re-invest the portion of profits to make them comparable with SEZ units, so that their basic remit of enhancing manufacturing activity and employment would continue.