Feb 28, 2000|
Export sops may go
The government has, according to reports, finalised a plan to phase out incentives offered to companies engaged in exporting goods and services. Currently, export earnings are not subject to direct taxes. To compensate companies for the loss of this incentive, the government is planning to give sops that will help lower transaction costs.
The government's decision is a bold one in view of the fact that the recovery in foreign trade commenced only in October 1999. Taking away this tax incentive could lead to a loss of a key competitive advantage (pricing) in the international markets thus harming export growth. This could adversely affect the nascent recovery in not just foreign trade but also economic growth.
There is however, a need to broaden India's tax base and improve the tax to GDP ratio. This can only be made possible by taking away tax incentives and broadening the tax net. Furthermore, collections need to be stepped up by strictly enforcing compliance. It is in this context that the decision to take away tax sops for exports is justified. The government's decision to compensate for higher transaction costs would also prove to be a temporary measure as domestic infrastructure improves and interest rates decline.
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