The Hindu Business Line : SEZ Bill proposes extended I-T sops

UNITS in the special economic zones (SEZs) are likely to gain financial benefit through an extended income tax concession proposed in the Special Economic Zones Bill 2005, which was approved by the Union Cabinet on Wednesday.

Under the proposed dispensation, income tax concessions to units in SEZs would be made available over an extended period of 15 years as against the current norm of 10 years. The SEZ Bill is likely to be introduced in Parliament during the current session itself, an official spokesperson said.

Indications are that the Bill would not have any sunset clause for grant of income tax concessions to SEZ units. The sunset clause that was to be introduced in the income-tax legislation through the Finance Bill 2005 has now been withdrawn through the amendments to the Finance Bill 2005.

The SEZ Bill provides a single-window clearance and approval mechanism for establishment of SEZs as well as production units inside the zones.

After the passage of the SEZ Bill, units would be eligible for 100 per cent tax exemption for 5 years, 50 per cent for the next five years, and 50 per cent of the ploughed back export profits for the next five years (in all 15 years). SEZ developers would continue to get 100 per cent income tax exemption for 10 years in a block period of 15 years.

Currently, units in SEZs are allowed 100 per cent deduction of export profits for five years, 50 per cent of the export profits for the next two years and 50 per cent of the export profits ploughed back for the next three years. To be eligible for this tax concession under Section 10 A of the Income-Tax Act, an SEZ unit should have started manufacturing or developing computer software after March 31, 2002.

An official spokesperson said that the introduction and passage of the SEZ legislation would provide confidence and stability to domestic and foreign investors and also signal the Government's commitment to the SEZ policy framework. It is also expected that many large-format multi-product SEZs that have so far been unable to achieve financial closure would now move towards such closure.

Further, it is also anticipated that the new law would trigger a large flow of foreign direct investment as well as domestic investment in infrastructure and productive capacities, thereby leading to creation of employment opportunities.

The Government has already approved 36 SEZs and all the eight export-processing zones (EPZs) have been converted into SEZs. In addition, three new SEZs at Indore, Jaipur and Kolkata have recently started operations.

There are 768 units in operation in SEZs so far, providing employment to about 1 lakh persons, about 40 per cent of whom are women. Private investments by entrepreneurs for establishing units in SEZs is about Rs 2,000 crore, of which foreign/NRI investment was about Rs 500 crore.

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