NEW DELHI: Union budget 2016-17 could see the government doling out income tax exemptions to institutions imparting skill training besides extending service tax exemptions to them for next five years as it gears up to roll out Skill India Mission that aims to impart skills to 500 million people by 2022.This benefit could, however, be restricted to ‘A category’ of project implementing institutes; agencies that have completed three or more projects under Aajeevika Skills under the rural development ministry or have trained 20,000 beneficiaries and provided placement to 75% of trainees in the previous five years.A senior government official told ET the skills ministry has already referred the proposal to finance ministry. The NITI Aayog’s sub-group of chief ministers on skill development has also suggested a tax incentive. “We have requested the finance ministry to give income tax exemptions to institutes imparting skills training and extend service tax exemption for next five years to incentivise them to stay put and expand their skill of operations,” said the official, requested not to be identified.There is a good chance this proposal could go through, considering Skill India is Prime Minister Narendra Modi’s pet project and key to success of his ‘Make in India’ initiative, the official said. Skills development minister Rajiv Pratap Rudy had recently said in Parliament, “Action points for implementation of recommendations of the sub-group have been identified and referred to concerned central ministries/departments, state governments and other stakeholders.”The target group for skill development comprises potentially the labour force, including those entering the labour market for the first time (12.8 million annually), those employed in the organised sector (26.0 million) and those working in the unorganised sector (433 million).Current capacity of skill development programmes in India is 3.1 million annually and this has to be substantially scaled up by roping in more and more private players to meet the robust target of skilling 500 million people over the next seven years.The sub-group of chief ministers under the governing council of NITI Aayog, chaired by Punjab chief minister Parkash Singh Badal, had recommended that the government consider imparting income tax exemption to skill training providers for a period of five years besides extending the service tax exemption to skill development programmes for the next five years.The report has been submitted to the Prime Minister and the Aayog is hopeful its key recommendations will be implemented over the next year, officials said.While any service provided by the National Skill Development Council or a state sectoral council is exempt from payment of service tax, vocational educational courses provided by institutions set up by the government are exempted.Skilling India is a laudable goal. But the government should be clear on how it plans to achieve this. Doling out tax exemptions to institutions imparting skill training is a suboptimal solution, and goes against the tax reform. Exemptions mess up the tax system and should be eschewed. Funding support, if at all, should be direct. The government should focus on reform in education, raise its quality and strengthen the linkages with industry. To make the Skill India Mission a success, it must also enlist support from the corporate sector in a big way.