New Delhi, Feb 21 The Federation of Indian Export Organisations (FIEO) has said that the forthcoming Union Budget 2010-11 should provide supportive measures in terms of tax reliefs and concessions and removal of procedural hurdles to trade and industry so as to sustain the current consistent spell of positive trends in the country's exports, following a 13-month phase of persistent decline.
Talking to Business Line here, the FIEO President, Mr A. Sakthivel, said that following the introduction of investment-linked tax incentive scheme for specified business under Sec 35AD for setting up and operating a cold chain facility, a warehousing facility for storage of agricultural produce or laying and operating a cross-country natural gas or crude or petroleum pipeline in the recent past, the time is now ripe for extending this facility to micro, small and medium export (MSME) segment labour-intensive sector to enable investment in capital machinery and equipment.
Alternatively, he said, 50 per cent of the profit of the MSME export enterprises might be exempt from tax in case it is ploughed back into business.
Depreciation
Recalling that the 2005-06 Union Budget had curtailed the depreciation on plant and machinery from 25 per cent to 15 per cent assuming a life span of nearly 25 years for such plant and machinery, he said that the machinery used in industry is liable to frequent technological changes and particularly with intense competition in export segment.
Hence, there is a need for used machines to get replaced by modern machinery. Considering the obsolescence in most industry is only a couple of years, the depreciation rate needs to be restored to the original level of 25 per cent, he said.
Tax deduction at source
Another anomaly that needs to be set right, he said, relates to applicability of tax deduction at source (TDS) that defines income deemed to accrue or arise in India in case of a non-resident.
Where a foreign agent of an Indian exporter operates in his own country and his commission is usually remitted directly to him and as such, it is not received by him or on his behalf in India, such an agent is not liable to income tax in India on the commission.
Besides, Section 195 states that since no part of his income is said to have arisen in India, no tax is deductible at source, according to circular of February 7, 2000.
But, CBDT has withdrawn this circular in October 2009 stating that “interpretation of the circular by some of the taxpayers to claim relief is not in accordance with the provisions of Sec 9 of the Income-Tax Act or the intention behind the issuance of the circular”.
The FIEO President said the CBDT might issue the requisite notification clarifying whether TDS is applicable on foreign agency commission to obviate the hassles to exporters in complying with paper work.
Interest subvention
On the banking front, he said, the 2 per cent interest subvention scheme in pre and post-shipment credit available for specified export sectors till March 31, 2010 needs to be expanded to all sectors of exports in the backdrop of poor order book and high cost of credit.
With many of India's rivals such as China and South-East Asian countries keep the bank interest below 5 per cent, the existing two per cent interest subvention in shipment credit needs to be extended for another three years.
Referring to transaction cost reduction, Mr Sakthivel said exporters are allowed to keep 100 per cent of their export earnings in “Exchange Earners Foreign Currency (EEFC) account” which protects them from exchange rate fluctuations and reduces conversion costs for export payments. But, when any import payments are made from EEFC account, they are charged at 0.15 per cent by banks which negates the whole purpose of maintaining EEFC account.
He further said wherever the manufactured product of exporters get exempted under Central Excise, it is necessary to lay down procedure and guidelines for grant of refund of credit balance lying in Cenvat credit.
Source : Business Line