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IT Firms Get Nod to Operate in SEZ.


Date: 17-11-2010
Subject: IT Firms Get Nod to Operate in SEZ
India has allowed two information technology (IT) firms to operate their units in special economic zones (SEZs) in Bangalore after revoking their licences to do so last month.

The commerce ministry had on 18 October cancelled operating licences of Mumbai-listed Geometric Ltd and Stratify Software India Pvt. Ltd, the back-office unit of New York-listed Iron Mountain Inc., because they had shifted their existing bussiness units to tax-free enclaves, which was not allowed under the law, Mint reported on 20 October.

The about-turn last week came in the wake of a 2 November commerce department notification that said companies can shift their existing units to SEZs as long as theydo not claim income-tax benefits.

“We have received a letter revoking the earlier cancellation last week,” an executive at one of the firms said. He spoke on condition that he and his firm remain unnamed.

A government official confirmed the development. He, too, requested anonymity. Both the companies declined to formally comment on the matter. The latest decision has not gone down well with some officials.

“With this notification, the department of commerce is making something which is illegal legal,” said another government official, who did not want to be named.

Even if a firm forgoes income-tax benefits, there are other benefits of operating in an SEZ, such as minimum alternate tax, service tax, sales tax, etc., which should also not be allowed, the official said.

“Moreover, it will be difficult to differentiate between work which is happening in new and old units within the SEZ,” he added. The directive could have been spurred by the fact that benefits under the Software Technology Parks of India (STPI) scheme are expiring next year, the official said.

The STPI scheme offered a 10-year tax holiday for IT firms. India’s SEZ policy exempts companies from tax for five years; in the next five years, companies need to pay only half the tax they would have otherwise paid; and in the five years after this, they can claim a 50% exemption on profits reinvested in business.

“This recent clarification will benefit companies who are looking at consolidating their operations at one place,” said Abhishek Goenka, partner at consultancy BMR Advisors.

Meanwhile, the Board of Approval for SEZs has cleared an application by Msource (India) Pvt. Ltd, the back-office services arm of MphasiS Ltd, a subsidiary of Hewlett-Packard Co., which wanted to consolidate its operations in Bangalore by shifting its existing units, chief financial officer Ganesh Murthy said.

Source : .livemint.com

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