Finally, it is curtains for tax holidays for the Software Technology Parks of India (STPI) scheme and export oriented units (EOUs). The tax break, which cost the government Rs 23,806 crore in 2007-08, will be terminated after March 2009.
?In all probability, the tax holiday might not be extended beyond 2009, but the government has to take a decision on it,? said R Prasad, chairman, Central Board of Direct Taxes, to reporters in Kolkata on Monday.
After Budget 2008-09, IT companies had tried to draw comfort from the absence of any mention of the termination in the Finance Bill. While announcing tax holidays for hotels and hospitals in specified areas, Budget 2008-09 was silent on the issue of continuing the tax holidays for STPIs and EOUs.
Post-Budget, finance ministry officials had said they might review the schemes in the next Budget, as they do not get over until March 2009. But Prasad?s comments have terminated the lifeline. This means the sunset clause of the two schemes set under Sections 10 (A) and 10 (B) of the Income Tax Act will not be extended after March 2009.
The estimate of the tax break includes those given to STPIs, EOUs and Electronic Hardware Technology Parks. Government officials argue that most large industry units are expected to migrate to special economic zones where they will continue getting exemptions. So the finance ministry feels that the STPI and EOU schemes would not be necessary.
?A 10 year tax exemption is more than enough for any industry to establish itself and start getting profits. So there is not much point in continuing the exemptions,? a government official said.
Units registered under the two schemes enjoy a 10-year income tax holiday along with other tax benefits.