The Hindu Business Line : Tax-free parks

It is just as well that the Government has clarified that a unit set up in a software technology park shall not be denied the benefit of income-tax exemption on profits on the grounds that the park itself has not been approved by an inter-ministerial committee. Given the amorphous nature of a product such as computer software, there is every chance for the scheme to degenerate into one of granting legitimacy to an activity of laundering foreign exchange. By restricting the tax exemption in the first place to units located in approved technology parks, the Government could minimise, if not eliminate, the risk.

But the idea of a technology park as a complete solution to the business needs of a software enterprise was originally promoted by the Centre and has since been picked up by almost all State governments to attract investments. Consequently, there has been a proliferation of such parks across the country. If the official approval mechanism at the Centre has been overwhelmed by the success of the scheme, businesses that have come up in these parks should not be penalised, by being denied the tax benefit. Especially when the park itself was conceived of as a device to shield units from oppressive bureaucratic controls. If the official release is a demonstration of the Government's sensitivity to concerns of the software units that have come up in these parks, it is unfortunately also proof of its penchant for resorting to holding operations in the face of a policy challenge instead of thinking through the problem. It has assured the taxpayers that their incomes would enjoy tax exemption even if the parks are not approved by the inter-ministerial committee. But how is this to be ensured when the law is quite explicit that the benefit of tax exemption is available only to units set up in an approved technology park?

It would be simplistic to assume that assessing officers would be dictated solely by internal clarifications and circulars, when the law of the land decrees them to act otherwise. Equally mystifying is the clarification that assessments already completed and demands raised by the tax authorities would be kept in abeyance. It is surely not telling the companies that the tax notice served on them can be ignored. It is cold comfort for a company that it can count on the indulgence of the officer having jurisdiction over his case now that the Government has issued a press release. It is far better that the Government either amends the relevant clause in the Income-Tax Act or expedites the process of clearance of existing technology parks from a tax perspective. The entrepreneurs in the IT sector could do without the uncertainties of their tax status when they have more pressing challenges in the market place.

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