Exempt export income from I-T, says Assocham

In a suggestion that could prove to be revenue-neutral for India, trade body –– the Associated Chambers of Commerce and Industry of India (Assocham) –– wants export income to be exempt from income tax for three years or till merchandise exports cross $500 billion.

The suggestion, justified by Assocham as key to revive economic activity, comes even as the annual supplement to the Foreign Trade Policy is due for announcement by the government. It also makes a case for including services exports to qualify for exemption.

The statement further said, “In the third quarter of the FY ’13, foreign institutional investors (FIIs) came handy for financing the current account deficit (CAD). The situation has now changed with FIIs turning out to be net sellers. While the export deceleration seems to have bottomed out, nothing is certain as yet as almost entire European market is not turning around giving a big setback to mainline export items like engineering goods.”

While the move, if implemented, may boost exports, the revenue foregone by the Centre is bound to upset its finances, given the large deficit it is already running. The CAD was 6.7 per cent of the country’s gross domestic product in the third quarter of 2012-13, even as the Reserve Bank of India Governor D Subbarao recently said that CAD above 2.5 per cent is “unsustainable” for India.

Assocham too conceded the fact that such exemption, if granted, would be a “drain on the exchequer,” but said the “overall results would be gainful the economy as higher exports would spur economic activity by increased consumption and demand.”

Terming the 2014-15 export target of $500 billion as “next to impossible” in the context of a gloomy global trade forecast of 3.3 per cent for 2013 by the World Trade Organization, Assocham said that the country as a whole should embark to grow exports, which would become an attractive proposition only by giving tax exemption.

India’s merchandise exports declined 4 per cent at $266 billion during the period April-February 2012-13, while imports were $448 billion.