Commerce Ministry to push for sops for SEZs in Foreign Trade Policy

Taking up the cause of Special Economic Zones (SEZ) that were left high and dry in the Union Budget presented on Friday, the Commerce Department will try to convince the Finance Ministry to restore tax benefits for the zones in the Foreign Trade Policy expected in the next few weeks.

“The Finance Minister talked about the need to help SEZs, but he did not announce any measures. We are hopeful that we will be able to turn the good intentions into action in the FTP,” a Commerce Ministry official told Business Line .

The FTP – which includes incentives and trade facilitating measures to boost exports – will be announced after Minister of State for Commerce (independent charge) Nirmala Sitharaman is back from her meetings in Brazil and Australia later this month.

The Commerce Ministry had asked the Finance Ministry to do away with the Minimum Alternate Tax (MAT) of 18.5 per cent and Dividend Distribution Tax (DDT) of 15 per cent imposed on SEZs by the UPA Government in 2011-12.

The SEZ Act promises units a five-year tax holiday on profits, while developers are promised a tax holiday for 10 consecutive years.

The Commerce Ministry is also exploring if SEZ units can be given benefits under the Focus Product and Focus Market schemes available to units in rest of the country for exporting identified products and selling in specific markets.

In his Budget speech, Finance Minister Arun Jaitley said the Government was committed to reviving SEZs.

“Effective steps would be undertaken to operationalise the SEZs, to revive investors’ interest, to develop better infrastructure and to effectively and efficiently use the available unutilised land,” he said.

Commerce Ministry officials will hold talks with their counterparts in the Finance Ministry over the next few weeks to discuss incentives for the zones, the official said.

Investments into the zones have dried up since the taxes were introduced three years ago.

A number of developers including Reliance Industries Ltd, Ansals, Essar, DLF and Omaxe have got some of their SEZs denotified – fully or partially – in the last three years. There are as many as 203 approved SEZs that are yet to be made operational.

According to research body ICRIER, the uncertainty about the stability of the SEZ policy created by the taxation decision had hurt investor sentiments more than the financial implications.

Investor are afraid to invest in the zones as they are not certain what next would be changed in the rules, ICRIER observed in a study on status of SEZs.

The increase in cost of production for units due to imposition of MAT differs based on the profit margin of the sector and would roughly range between 0.5 per cent and 4 per cent.

SEZs contribute about 30 per cent to national exports, employ an estimated 13 lakh workers across the country and have attracted investments worth ₹3 lakh crore, according to figures furnished by the Export Promotion Council for EOUs and SEZs.

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