Financial Daily from THE HINDU group of publications
Wednesday, Dec 07, 2005
Financial Daily from THE HINDU group of publications Wednesday, Dec 07, 2005 |
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Taxation Industry & Economy - Exports & Imports Tax exemption with riders for profit from DEPB licences — Amendment Bill introduced in LS; provisions a let down, say exporters K.R. Srivats
New Delhi , Dec. 6 PROFITS earned from sale or transfer of duty entitlement passbook (DEPB) licences are not to be tax-exempt across the board, as demanded by exporters. The Taxation Laws (Second Amendment) Bill introduced in the Lok Sabha by the Finance Minister, Mr P. Chidambaram, today seeks to bring legal validity to the Income-Tax Department's efforts to recover income-tax on retrospective basis on the profits earned by exporters from transfer of DEPB licences from 1997. The Bill has made it clear that profits earned on the transfer of DEPB licences should be treated as business income. It has proposed the extension of the deduction allowable under Section 80HHC of the Income-Tax Act to profits on transfer of DEPB licences so long as certain conditions are met. If one were to go by the provisions of the Bill, exporters with annual export turnover of Rs 10 crore or less would not be required to fork out any tax on such profits, as they would be entitled for the Section 80HHC benefits without having to meet any conditions. For exporters with annual export turnover exceeding Rs 10 crore, the Section 80HHC deduction would be available so long as the exporter conforms to two specific conditions — a) he had an option to choose the duty drawback or DEPB scheme for his export item and (b) the rate of drawback credit attributable to the customs duty was higher than the DEPB credit allowed for the exported product or item. Exporters, who had protested against the I-T Department's efforts to recover tax on a retrospective basis on such profits/incomes, are disappointed with the provisions of the Bill. "More than 90 per cent of the exporters with turnover of over Rs 10 crore would not be able to comply with the two conditions. They would, therefore, be required to pay tax on profits on transfer of DEPB licences," Mr Ajai Sahai, Director-General of the Federation of Indian Export Organisations (FIEO), told Business Line. Exporters were expecting that the Government would not go entirely by the recommendations of the Prime Minister's Economic Advisory Council on this issue. Faced with equally convincing but opposing arguments from the exporting community and the Revenue Department on the issue of taxation of income arising from sale of DEPB licences, the Prime Minister, Dr Manmohan Singh, had in early April referred the issue to his Economic Advisory Council. He had asked the council to look into all legal aspects relating to the taxation of profits arising from transfer of DEPB licences. While concurring with the contention of the Revenue Department, the Prime Minister's Economic Advisory Council had suggested that the pain of taxation should be reduced for small exporters by specifying a threshold (say annual export turnover of Rs 10 crore) below which recovery proceedings are not to be initiated by the Tax Department. Apart from the provisions relating to taxation of profits on transfer of DEPB licences or duty-free replenishment certificates (DFRC), the Taxation Laws (Second Amendment) Bill 2005 also seeks to replace the Taxation Laws Amendment Ordinance that was promulgated on October 31 this year. The Ordinance, among others things, had granted withholding tax exemption on lease payments made by Indian airline companies to foreign enterprises for lease of any aircraft, in case such agreements are signed before April 1, 2006. It had also exempted political parties registered with the Election Commission and companies registered under Section 25 of the Companies Act from the levy of the Fringe Benefit Tax.
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