Alarmed over the rapid rate of exit by the 100 per cent export-oriented units (EOUs) from the existing scheme and in order to make it more beneficial and to attract more units under the scheme, an official committee has proposed a raft of measures, including extending investment-linked income-tax benefit to EOUs and exempting Central sales tax on the goods supplied to EOUs, as also from State levies and service tax on the services consumed wholly within the EOUs.

Fiscal concessions

Introduced in the early 1980s, the EOUs have been eligible for fiscal concessions which include duty-free import/domestic procurement and reimbursement of CST on capital goods, raw materials, consumables for their production and corporate tax exemption on export income for a specified duration.

Over the years and in the wake of the general trade policy liberalisation, most of the benefits were blunted. Consequently, the share of EOUs in the aggregate exports is about 25.74 per cent, 21.04 per cent and 8.42 per cent during the years 2007-08, 2008-09 and 2009-10, the Minister of State for Commerce and Industry, Mr Jyotiraditya M. Scindia, said in response to a written query in the Lok Sabha on August 1.

Industry sources told Business Line here that in the run-up to the discontinuation of income-tax benefits under Section 10B of IT Act effective from April 1, 2011, as many as 354 units debonded from the scheme till December 2010 in the fiscal year 2010-11, against 393 in 2009-10.

The prominent EOUs which exited from the scheme include Reliance Jamnagar, Orient Crafts Ltd, Oswal Cotton and Spinning Ltd, Vardhman Group, Ludhiana and Nahar Spinning Mills, Rajasthan.

It is against the rough patches to the EOU scheme users that an official committee under the Chairmanship of Development Commissioner, Noida SEZ, Mr S.C. Panda, was set up to review/revamp the EOU scheme which submitted its report to the Commerce Secretary Dr Rahul Khullar, in the second week of July. After interacting with prominent EOUs across the country, the committee has plumped for a set of recommendations.

The sources said the committee's recommendations cover, among others, rationalisation power of approval of the proposals for setting up EOUs and dispensing with the minimum investment criteria for setting up EOUs and to allow broad banding of operations and activities in the EOU in the macro perspective of global business environment and consolidation of activity for cost optimisation.

It has also suggested reduction in the export turnover ceiling for self-warehousing and self-certification of goods imported/procured by EOUs to Rs 5 crore from Rs 15 crore, besides rationalising reports/returns to be filed by EOUs.

Credit facility

The committee is also understood to have suggested credit facility under the Exchange Earner Foreign Currency (EEFC) balances and retention of 100 per export earning in EEFC account.

It has also suggested rationalising the criteria for unblemished trade record to qualify for benefits and to allow inter-unit transfer of inputs among group companies.

The Export Promotion Council for 100 per cent EOUs and SEZs (EPCES) has said that the members of the council were looking forward to early implementation of the recommendations not only to stem the de-bonding and faster exit from the scheme by extant members but also to encourage investment which would supplement and complement the country's export drive.

They said there is also a need to look into fiscal benefits available under SEZ scheme and other export promotional schemes and extend them to EOU scheme so that the latter gets the level playing field and is not unduly disadvantaged in terms of viability of operations.

> geeyes@thehindu.co.in

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