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The Commerce and Industry Ministry is pushing for lowering of minimum alternate tax on Special Economic Zones (SEZs) in the forthcoming Budget as it has led to flight of proposed investments from the zones.
It is also trying to convince the Finance Ministry to extend the cut-off date for zones that would come under the proposed Direct Taxes Code beyond April 1, 2012.
Large corporates including RIL, Ansals, Essar, DLF and Omaxe have got some of their SEZs denotified – fully or partially – after the Government imposed a MAT of 18.5 per cent on SEZ units and developers in Budget 2011-12. A dividend distribution tax was also imposed on developers.
“We had earlier asked the Finance Ministry to do away with MAT on SEZ units as it was making projects unattractive for developers. Since there is so much strain on finances at the moment, we want that the duties should be at least reduced to a more acceptable level of say 7.5 per cent,” a Commerce Department official told Business Line .
Since the imposition of MAT, at least 50 SEZs have been de-notified by the Centre.
“Reasons given by developers for de-notification include economic meltdown, poor market response, non-availability of skilled labour force, lack of demand for space and imposition of MAT and DDT on SEZs,” according to a Commerce & Industry Ministry release.
The SEZ Act 2005 promises units a five-year complete tax holiday on profits, followed by 50 per cent exemption on profits over the next five years and 50 per cent exemption on re-invested profits in the subsequent five years. Developers get a tax holiday for 10 consecutive years that they can choose in a bracket of 15 years.
The Commerce & Industry Ministry is also trying to convince the Finance Ministry to extend DTC provisions only on units that come up after March 2015. The DTC proposes to link tax benefits to investments rather than profits which would be detrimental for units with low investments such as IT.
“Pushing the grandfathering date by three years would help SEZ developers attract investments over the next couple of years and give them the confidence to move ahead with their projects,” the official said.
With the withdrawal of income tax benefits, SEZ units do not enjoy any extra benefits over units in the domestic tariff area while they have to let go of several incentives that those units enjoy, points out P.C. Nambiar, Chairman, Export Promotion Council for EOUs and SEZs.
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