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IT units' shift to SEZ: bounty for developers?

india Updated: Dec 12, 2010 23:02 IST
Vivek Sinha

Real estate developers are slated to reap a windfall as large number of software units shift base from software technology parks (STP) to SEZs in order to avail tax concessions available in special economic zones (SEZs). Developers will gain from fresh leasing out of space to the newly-shifted software units that migrate from an STP to SEZ.

Current tax concessions are being withdrawn in STPs from end-March 2011. However, a software firm operating in an SEZ would continue to avail tax breaks for at least another five years. Also, as the government has allowed transfer of software units from an STP to SEZ, shifting operations to an SEZ would be attractive to software firms.

"Direct beneficiary of this migration of IT units into SEZs will be real estate developers, who will reap a windfall by renting out SEZ space to the newly-shifting IT units," a senior official in the ministry of information technology told Hindustan Times. However, unlike large enterprises, small and medium software units could find it difficult to relocate to an SEZ, he said.

In order to help small and medium units, the IT ministry "recently" wrote to the finance ministry, seeking an extension of tax concessions under the STP regime for at least a year. "The STP regime has been beneficial to small and medium software units that are facing stiff competition from their counterparts in Philippines, Sri Lanka, Eastern Europe and Latin America. Extending tax breaks for another year would help small and medium units retain their export competitiveness," he said.

There are close to 7,000 registered units in 52 STPs of the country. In April 2000, the government allowed a 10-year tax holiday for units operating from STPs, to encourage export-oriented growth of the economy. Now, even as the tax-holiday regime for STP units is set to expire in March 2010, they can avail similar benefits in SEZs. Reaping a windfall