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Export sops phase-out may fetch Rs 18,000 cr by 2004-05

Hema Ramakrishnan

Vipin Kumar

NEW DELHI, March 7

THE phasing out of export concessions over a five-year period could translate into additional revenues of around Rs. 18,000 crores to the exchequer by the end of fiscal 2004-05, according to senior Government officials.

Back-of-the envelope calculations are based on the assumption of a 55-60 per cent growth in IT-enabled services and a 10 per cent growth in the manufacturing sector, officials said.

The base-level export revenue for IT-enabled services and the manufacturing sector at the end of fiscal 2000 has been assumed at around Rs. 10,000 crores and Rs. 1,00,000 crores respectively.

The export revenue from IT-enabled services would work out to around Rs. 16,000 crores during the first year of phase-out as per the informal projections. The taxable profit would work out to around Rs. 960 crores as 20 per cent of the profits would be t axed in the first year. A 38.5 per cent tax on the average profits would yield an additional Rs. 370 crores to the exchequer.

The additional tax revenues at the end of the fifth year _ where the exporter would be fully taxed _ works out to over Rs. 11,000 crores.

The extra realisation to the exchequer would be much higher if the industry's estimate of export revenue of Rs. 17,000 crores is taken as the base. While the additional tax revenue at the end of the first year works out to around Rs. 625 crores, it would be over Rs. 18,700 crores at the end of the fifth year.

These projections, however, do not take into account the exemptions that would be available to the software technology parks and export processing zones set up before April 1, 2000.

In the time-table for withdrawal of export incentives under 80HHC, 80HHE and 80HHF, the Finance Bill has proposed that the assessee would be entitled to a deduction of 80 per cent in the assessment year 2001-02, 60 per cent in the assessment year 2002-03 , 40 per cent in the assessment year 2003-04 and 20 per cent in the assessment year 2004-05.

The Finance Ministry's informal projections is at variance from the estimate given by Nasscom on Monday. The latter had estimated that the Government would be able to net only Rs. 20 crores as additional revenues in the ensuing fiscal since 75 per cent o f the total export earnings would be generated by software units situated at software technology parks (STPs) and export processing zones (EPZs) which enjoy a tax holiday of 10 years.

The projections made for the manufacturing sector _ assuming a 10 per cent growth in exports and an average profits of 10 per cent _ indicate that the Government would be able to mobilise close to Rs. 3,850 crores at the end of the first year of phase-ou t of export incentives and close to Rs. 6,000 crores at the end of the fifth year.

The additional tax revenues of over Rs. 11,000 crores from IT-enabled services and over Rs. 6,000 crores from the manufacturing sector at the end of 2004-05 could help reversing the declining trend in tax-GDP ratio.

The Finance Ministry had, prior to the Union Budget, set up an internal committee to look into the issue of phasing out export incentives. The committee is learnt to have pointed out that the incentives have outlived their utility.