The impact of the rupees appreciation has forced the government to reconsider phasing out tax exemptions under the Software Technology Parks of India (STPI) scheme.
Government sources said while North Block was yet to go into Budget mode, it is likely to lend a sympathetic ear to the industry proposal for an extension of the scheme by another ten years.
The scheme, under section 10 (A) and 10 (B) of the Income-Tax Act, provides STPI units income-tax exemption for ten years for the development and export of computer software and professional services. The tax waiver will end in March 2009.
IT companies have said while the rising rupee has already crimped their profitability, the removal of tax exemption as well would be very difficult to absorb. The stronger rupee has slowed overall export growth. Until the end of September, exports have registered a mere 4.3% rise to Rs 51,621 crore in rupee terms.
The government has already offered a more broad bouquet of fiscal exemptions for units in special economic zones and feels that the STPI should not be given further extension. But Nasscom president Kiran Karnik has said extending the scheme would help small companies who cant afford SEZs.