The Hindu Business Line : Tax sops for SMEs: Raja seeks PM’s intervention

New Delhi, April 25 The Communication and IT Minister, Mr A. Raja, has sought Prime Minister’s intervention over the issue of extension of tax incentive under the Software Technology Park (STP) scheme, saying continuation of benefits could be considered exclusively for SMEs, in case the Finance Ministry had any reservations on extending it in totality.

Mr Raja, who wrote to the Prime Minister earlier this week, has raised the issue in the backdrop of the recent announcement of one-year extension for the export-oriented unit (EOUs) scheme to March 2010.

He pointed out that while the EOU scheme has been granted one-year extension, no such waiver was extended in the case of Section 10 (A) which covers the STP scheme, despite the fact that both the schemes had similar features and provided identical concessions since inception.

Based on Nasscom estimates, the IT software and services sector remains India’s top exporter, with exports of over $40 billion in FY08. Of the total exports, nearly 47 per cent of the revenue comes from the small and medium enterprises (SMEs) alone. The industry is a major employer, with over two million direct employment, and indirect or induced employment of nearly eight million people.

Stung by a difficult market condition and rupee appreciation, the IT sector has been pushing for continuation of STP scheme and tax incentives under Section 10 (A) for another 10 years. The industry argues that such an extension would enable companies to stay competitive, particularly as other countries are busy doling out sops (tax holidays, free space, superior infrastructure) to attract MNCs and even Indian IT companies.

Tax holiday

The tax holiday has been a catalyst in the growth of the Indian IT and BPO industry, and the demand for its extension assumes significance as export-oriented IT firms are already battling rising wages and a potential slowdown in the US — their largest market and pressure on margins.

Given these circumstances, phasing out the STP scheme, leaving the SEZ as the only option for tax benefits, creates several problems for the SME segment. The Minister has pointed out that in case the Ministry of Finance had reservation in extending the benefits in the present form, it may be considered whether the extension of the income-tax benefits may be considered exclusively for the SMEs who are members of the STP scheme.

Earlier this month, software association Nasscom had indicated that US credit crunch could lead to some slowdown in growth rate of Indian software and services sector.

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