The Hindu : National : PM steps in to resolve row over export sops

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Saturday, Apr 09, 2005

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National

PM steps in to resolve row over export sops

By Our Special Correspondent

NEW DELHI, APRIL 8. To resolve differences between the Finance and Commerce ministries, the Prime Minister, Manmohan Singh, has stepped in and referred four critical trade policy issues to the Prime Minister's Economic Advisory Council.

These include taxing proceeds from sale of Duty Entitlement Passbook Scheme (DEPB) licences, exemption of service tax for export oriented units (EOUs), extending deemed export benefit to domestic tariff area units and the introduction of a "sunset" clause for EOUs.

Highly placed sources here said differences emerged in as many as 12 key issues between the two ministries while holding consultations in the run-up to the annual trade policy announcement. These were then taken to the Prime Minister for a final view. While a decision was taken on eight issues, the remaining four were referred to the council for its views.

On the tax assessment and recovery from exporters using the DEPB incentives, he has directed the Economic Advisory Council, headed by the former Reserve Bank of India Governor, C. Rangarajan, to submit a report within 30 days. Referring to this issue during today's trade policy press conference, the Union Commerce and Industry Minister, Kamal Nath, said, "the Prime Minister has been seized of the matter and directed that all proceedings regarding assessment and recovery should be kept in abeyance".

The Economic Advisory Council has also been asked to consider other options to resolve the problem including retrospective amendment to the Income tax Act to provide tax exemption under section 80 HHC. This section allows a special tax exemption on export profits.

As for other issues, sources say the Commerce Ministry was seeking to allow units to continue tax breaks allowed for EOUs for a ten-year period. The Finance Ministry, on the other hand, was seeking an end to such benefits by 2009. The third issue also relates to EOUs and exemption of service tax for such units.

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