Investments in Special Economic Zones (SEZs) declined as a result of introduction of Minimum Alternative Tax (MAT) and Dividend Distribution Tax (DDT) which led to negative investor sentiments, a study commissioned by the Commerce Ministry has said.

Moreover, products manufactured in the zones have become non-competitive in the domestic tariff area (rest of the country) due to high import duty structure and zero or lower tariffs due to free trade agreements, the study titled ‘SEZs in India-Issues and Way Forward’ carried out by research body ICRIER highlighted.

“SEZ units are rather at a disadvantageous position as they are not eligible for benefits under the Foreign Trade Policy,” the study said. To make SEZs attractive again for investors, both domestic and foreign, the study, by ICRIER Professor Arpita Mukherjee, has recommended aligning the SEZ policy with the Foreign Trade Policy so that units in the zone, too, can benefit from incentives given to exporters.

It also advocated a stable policy regime, single window clearance, linking SEZs with the National Investment Manufacturing Zone policy, more focussed investments in the zones and greater accountability of development commissioners.

The Finance and Commerce Ministries are, at present, engaged in devising a package to boost SEZs which has seen a downturn following introduction of taxes in 2012. The Finance Ministry has not yet agreed to restore tax benefits as it believes that they will lead to considerable revenue loss.

Dismissing the notion of SEZs being tax havens, the study pointed out that fiscal incentives are given by all countries and not specific to Indian SEZs.

“Revenue foregone due to direct tax exemptions is only 0.3 per cent of GDP (2013-14) and 12 per cent of total revenue foregone due to direct taxes. Revenue foregone due to indirect tax exemptions does not count as loss since DTA exporters also get export concession benefits,” it said.

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