'Kelkar proposals a jolt to software companies'

NEW DELHI NOV. 10. Industry, especially the software and export sector, is concerned over the Kelkar committee proposal of withdrawing fiscal incentives on exports. The sector contributes substantially to the overall export effort.

The Electronics and Computer Software Export Promotion Council (ESC) has said that the suggestion was "short sighted and would give a jolt to export initiatives from the country.'' At a time when countries all over the world were taking pro-active measures for boosting their exports, India would not be able to bear the brunt of a retrograde action that might adversely affect exports.

In a statement issued here on Sunday, the ESC said its viewpoint was firmed up after a consultation with other leading industry associations such as MAIT, TEMA, ELCINA and CETMA. It warned that with the withdrawal of tax exemptions, all future investments into the export oriented units, software technology parks and special economic zones would come to a grinding halt.

The council also felt that it would amount to a breach of trust, as companies have made large investments into such undertakings on the expectation that the Government would provide tax exemptions for a specified number of years.

In addition, it pointed to the countries with export zones that have tax holiday benefits such as China and some West Asian countries. Significantly, tax exemptions granted to these zones are compatible with WTO rules.

The Indian Chamber of Commerce and Industry (ICCI) has also opposed the Kelkar proposal, saying that it would hurt the export effort. The proposal has been taken with the limited purpose of simplifying the tax structure. But a careful scrutiny of its adverse effect on exports would be essential. Indian products and services would not longer be price competitive in the international market if the fiscal concessions were withdrawn.

The ICCI noted that there were a number of small and medium software companies. Tax exemptions under section 10 A and 10 B had encouraged them to continue and also provide leverage to out price competitors.

The threat of withdrawal of tax exemptions would make their operations unviable at a time when the industry was facing innumerable problems due to slowdown in the United States and European markets, the chamber said.

The ICCI urged the Kelkar panel to reconsider the proposal and sought continuation of the fiscal incentives.

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