The Government is going back on something it promised, say companies, unhappy with the 18.5 per cent Minimum Alternate Tax that the Budget has imposed on Special Economic Zones.

The hope is that the Finance Minister does a rethink on the issue, says Serum Institute's Executive Director, Mr Adar Poonawalla.

Serum has invested about Rs 1,100 crore in its Pune SEZ and has over 1400 people employed there. The investments were made based on the promised tax incentives by the Government, he told Business Line .

As it is the SEZ sop of no-taxation is valid up to only 2014. So why cut it short before that term, he asked.

Cipla with its Rs 1,000-crore SEZ at Indore expressed similar sentiments, adding that profitability and cash flows would be impacted. Mr H.M. Nerurkar, Managing Director, Tata Steel, said the imposition of MAT on SEZ developers would have an adverse effect on the SEZs. Bringing SEZs under the purview of MAT basically diminishes the benefits that SEZs offer for developers over other commercial real estate asset classes, said Mr Anuj Puri, Chairman and Country Head, Jones Lang LaSalle India.

Echoing similar sentiments, small and medium IT companies said that MAT on SEZ exports defeats the entire idea of moving into an SEZ.

A case in point is Mumbai-based Infrasoft Technologies, which did not have a SEZ unit the same time last year. It now generates exports through SEZ now thanks to the STPI sunset clause. With the new norms, Infrasoft's effective tax rates will shoot up to 20-22 per cent from 10 per cent, said Managing Director Mr Hanuman Tripathi.

But Mr S. Mahalingam, Chief Financial Officer of Tata Consultancy Services, said: “The increase in effective tax rates will have an impact on cash flows since our SEZ profits will get taxed. However, from an effective tax rate perspective (for 2011-12), there will not be any change and it will continue to be in the 22-24 per cent bracket as we had stipulated earlier.”

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