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Relaxations in Special Economic Zones (SEZ) rules on minimum area and exit policy, announced recently by the Commerce Department, have been sent to the Law Department for examination. However, critics say the Government needs to do much more to restore investor confidence.
The Government should revoke Minimum Alternate Tax (MAT) and Dividend Distribution Tax on SEZ units and developers introduced two years back, said Prem Chand Gupta, Rajya Sabha MP from Bihar who is also a member of the Parliamentary Standing Committee on Commerce. The taxes were in breach of promise made to international investors, he added.
Interestingly, the Commerce Department has asked think-tank ICRIER to carry out a comprehensive study on how the SEZ policy has helped the economy and enumerate the reasons for investors’ waning interest in the zones. The Government’s flip-flop policies had led to the state of affairs, Gupta said.
“You made a commitment to the industry and international investors. Then you go back on that. This kind of policy change is not desirable,” he pointed out.
According to SEZ Rules 2006, units get 100 per cent tax exemption on profits earned for the first five years, 50 per cent exemption for the next five years and another 50 per cent on re-invested profits in the following five years. SEZ developers get 100 per cent tax exemption on profits for a period of 10 years, which they can choose to invoke within the first 15 years of operation.
Call to cut MAT
However, the introduction of MAT effective at 22.5 per cent and Dividend Distribution Tax of 15 per cent on SEZ units and developers has almost neutralised the advantage that the zones had against industry in the domestic tariff area.
The Commerce Department is continuing to engage with the Finance Ministry, urging it to at least pare the MAT rate.
“World over, MAT is half the ordinary tax rates. But in the case of SEZs, it is almost at par. We have asked the Finance Ministry to at least lower the rates if it is determined not to do away with it,” a Commerce Department official told Business Line.
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