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Monday, Mar 25, 2002

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Service tax exemption likely for special economic zones

Hema Ramakrishnan
Balaji C. Mouli

NEW DELHI, March 24

THE Finance Ministry may provide service tax exemption to all units operating in special economic zones (SEZs) in the forthcoming Exim Policy whose focus will be to cut transaction costs and make exports more competitive.

The Ministry was also examining a proposal to exclude units of SEZ developers from the purview of the minimum alternative tax (MAT) of 7.5 per cent on the book profits, said official sources.

A final view on these two proposals - whose revenue implications are being worked out - is expected to be taken at the crucial meeting between the Finance Minister, Mr Yashwant Sinha, and the Commerce Minister, Mr Murasoli Maran, scheduled here on Tuesday.

The Government has budgeted a realisation of Rs 6,026 crore from service tax during 2002-03, after factoring in revenues from 10 new services that are to be brought under the tax net.

Even as the Finance Ministry is under pressure to review its decision on taxation of some of the new services, the Commerce Ministry has made out a case for service tax waiver to SEZ and DTA units.

Other proposals in the Commerce Ministry's Exim policy wish list - permitting SEZ units to do commodity hedging, allowing trading transactions between the Domestic Tariff Area (DTA) and the SEZ in foreign exchange, allowing SEZ units to raise external commercial borrowings of less than three-year maturity - are also on the discussion agenda.

The proposal to restore income-tax exemption under Section 10 A and 10 B to SEZ units for the entire 10 years from the date of commencement of production will also be taken up.

Sources said that the Commerce Ministry's proposal to set up an international financial centre in one of the SEZs to facilitate flow of international finance for units coming up in the SEZ as well as for units in the domestic sector had, however, raised apprehensions in some quarters. "There are apprehensions that this proposal coupled with the proposed income-tax holiday could make SEZs potential tax havens," said sources.

The Finance Ministry has given its in-principle nod to the proposal to treat transactions between the DTA and the SEZ as import and export under the Foreign Trade Development and Regulation Act, Customs Act, Income-Tax Act and the Central Sales Tax Act.

Mr Maran has also gone on record to state that his Ministry's proposal to have a unified legislation for SEZ and declare SEZ as a port or an inland container depot is under the active consideration of the Government.

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