New EoUs may get 10-year tax holiday

The Commerce and Industry Ministry is working on a package of incentives for export-oriented units in the forthcoming Exim policy.

The package, which is being discussed by the Directorate-General of Foreign Trade with the revenue department, includes introduction of a defined period for availing income-tax holidays, similar to those available for special economic zones.

The present 10-year tax holiday for EoUs is set to end in 2009. There are around 2,100 EoUs across the country.

"Since the present tax holiday is set to expire in 2009, there is a disincentive for exporters to set up EoUs in 2007 or 2008 as the tax benefit will be available only until 2009.

Instead, we have suggested that each EoU be able to get tax exemption for a fixed period of, say, 5-10 years from the date of operation," an official said.

Officials pointed out that EoUs had a huge advantage over SEZs since they could come up anywhere and did not have to be set up at specific locations.

Some of the other suggestions being considered include exempting EoUs from payment of central sales tax and service tax since the government allows them to obtain refund on both the duties. Both the demands have been long-standing issues for the Council for EoUs and SEZs.

"At present, EoUs are allowed to take credit for payment of central sales tax  on goods supplied to the domestic trade area. The refunds have to be obtained from the development commissioner.

"As much as Rs 400 crore (Rs 4 billion) is pending by way of central sales tax refund to EoUs as development commissioners do not have adequate funds to refund," LB Singhal, director-general of the Council for EOUs and SEZs told Business Standard.

Singhal said several EoUs had also pointed out that there was a shortage of 'C' forms required by the EoUs to obtain refund of central sales tax.

He said exemption of service tax was another issue as despite the government allowing refund of accumulated cenvat credit, the cenvat credit rules notified last year only allowed refund of accumulated cenvat credit on inputs and not services.

The Budget this year had reduced the duty rates on clearances by EoUs to the domestic trade area from 50 per cent of the basic Customs duty to 25 per cent, while increasing the duty rate on excise to 100 per cent from 50 per cent earlier.

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