Nath to pray EOUs’ case before PM

NEW DELHI: There is hope for export-oriented units (EOUs), which stand to lose tax incentives within two years. Although the finance ministry is still opposed to extending the tax exemptions beyond March 31, 2009, when the sunset clause comes into play, commerce & industry minister Kamal Nath has said he plans to take up the issue with Prime Minister Manmohan Singh.

“I plan to take up the issue with the PM within a fortnight,” Mr Nath said during an interaction with SEZ developers and units organised by the export promotion council for EOUs & SEZ units on Thursday. EOUs have been demanding scrapping of the sunset clause so they could continue to enjoy tax holiday. They claim investment in EOUs has started drying up because of the impending revocation of tax sops.

The commerce department has been unsuccessfully pressing for extending the tax incentives beyond 2009. The department’s argument is that since EOUs earn thin profit margins, withdrawal of tax incentives will erode profitability of existing EOUs and discourage fresh investments. EOUs earn foreign exchange which is nearly 8% of the country’s total exports.

Exports from EOUs grew barely 1% to Rs 37,657 crore in 2005-06 compared to an average growth of 30% in the past decade, figures compiled by the export promotion council for EOUs and SEZs reveal.

Mr Nath said all government departments should realise that SEZs would be crucial when the Indian economy becomes more open after a slew of free trade agreements come into force.

The minister asked SEZ and EOU developers to persuade the finance ministry as well for tax incentives such as removal of minimum alternative tax. “You find it easy to corner me, but you will have to improve your persuasive skills with the finance ministry as well,” he told the developers.