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TDP pressure to roll back export units' profit tax

Hema Ramakrishnan

NEW DELHI, April 7

BARELY 20 days after the partial rollback of the LPG price hike, the Finance Minister, Mr Yashwant Sinha, has come under pressure again from a key ally of the National Democratic Alliance -- the Telugu Desam Party (TDP) -- to review the Budget proposal to tax 10 per cent of export profits made by export-oriented units (EOUs) for one year.

The TDP supremo and the Andhra Pradesh Chief Minister, Mr N. Chandrababu Naidu, has sought restoration of the 100 per cent income tax deduction on export profits available under Section 10 A and 10 B of the Income-Tax Act 1961 to units in special economic zones (SEZs), software technology parks (STPs) and 100 per cent E0Us. A formal representation had been sent to the Finance Ministry, said official sources.

The Finance Bill 2002 has proposed to restrict the tax deduction to 90 per cent of the profits or gains derived by the undertaking from the export of articles or computer software for one year - i.e. assessment year 2003-04.

Although the Commerce Ministry had, in the run-up to the Exim Policy, also sought restoration of the 100 per cent tax deduction, it was turned down by the Finance Ministry on the grounds that the restriction was only for a limited period.

An in-principle nod was, however, given to the Commerce Ministry's proposal seeking relaxation of the time period on the graded tax holiday benefit - under Section 10 A and 10 B -- for SEZ units coming up after 2005.

"A review of the proposed restriction of tax deduction to 90 per cent of export profits is inevitable now as the demand has been made by a key NDA member," sources said.

The review is being done at a time when Mr Sinha is trying hard to defend some of the politically-sensitive Budget proposals against the backdrop of Bharatiya Janata Party's (BJP) rout in the Delhi civic polls.

The Finance Minister has been furnished with a detailed analysis that, in a nutshell, seeks to establish the absence of any correlation between the Budget proposals and the party's performance.

The analysis of the poll results, for instance, concluded that the withdrawal of Section 88 benefits for assessees with taxable income of over Rs 5 lakh could not have been a key electoral issue as some of the BJP candidates had won from segments where the predominant population are the high and middle income groups.

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