STPI sops may live for SMEs hit by $ crash

NEW DELHI: Small and medium enterprises (SME) in the software export business may continue to enjoy income-tax benefits for some more time. The Prime Minister’s Office (PMO) is expected to pitch for a special dispensation for small exporters when the tax breaks available through the Software Technology Parks of India (STPI) scheme lapse in 2009.

An indication to the effect has been given to the information technology ministry that has been insisting the sunset clause for STPI tax sops should be scrapped. The concession to SME software exporters is to compensate them for rupee appreciation.

The PMO is likely to ask the finance ministry to consider extending income-tax sops to small and medium companies in software exports. It is felt the finance ministry may not be averse to a special dispensation for small exporters instead of allowing tax breaks for everyone. Telecom & IT minister A Raja had met prime minister Manmohan Singh in this regard.

The PMO’s intervention was sought as the finance ministry initially did not favour a proposal from the department of information technology (DIT) for retaining the tax breaks for STPI units beyond 2009.

Mr Raja has apprised the prime minister about the losses that STPI units would face on expiry of the STPI scheme. Dr Singh’s attention was also drawn to the fact that ending the tax sops may discourage investments and lead to brain drain again.

Sources in the government said the finance ministry may agree to the middle path of retaining tax incentives only for the small and medium companies. The extension may be granted for a period of three years which the finance ministry would do by amending the sunset clause under the scheme.

“Big companies like Infosys and Wipro no longer need promotional schemes to get ahead, and this has been mentioned by many including N Narayana Murthy of Infosys. The smaller ones, however, need support to come at par,” a senior official in the DIT said.

While big companies have been able to hedge against the 15% appreciation of the rupee against the greenback, SMEs have been hit hard. Nasscom had sought 10-year extension for the tax sops saying that domestic as well as multinational IT companies have started making investments in other countries fearing expiry of the STPI scheme.

“We are concerned that both MNCs and domestic companies are beginning to increase their spread of investment to other destinations,” telecom and IT minister A Raja told ET.