Plea to restore exemption from MAT, dividend distribution tax for SEZs

Arun S. New Delhi | Updated on November 15, 2017


Export promotion council to put forward proposals at pre-Budget meet with Pranab

The Export Promotion Council for Export Oriented Units and SEZs (EPCES) has demanded that the Government restore exemption from Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) for Special Economic Zones (SEZs).

The council claimed that the imposition of both the taxes has led to a fall in investments in SEZ projects.

This, along with many other proposals, will be put forward by the council before the Finance Minister, Mr Pranab Mukherjee, during a pre-Budget stakeholder meeting slated for January 31, official sources told Business Line.

What has also affected investments in SEZs is the Direct Taxes Code (DTC) proposal to withdraw profit-linked deductions for SEZs, the council said in its pre-Budget proposal document.

“After the SEZ Act, 2005 came into force from February 2006, the average annual investment was Rs 40,000 crore (till 2010-end) and it grew at 136 per cent compound annual growth rate. But investments have declined due to the uncertainty caused by the DTC proposal and the MAT and DDT. (MAT and DDT is imposed on SEZ developers and only MAT on SEZ units). The first six months of 2011 saw investments of only Rs 17,566 crore in SEZs,” it added.

The EPCES said imposition of MAT on SEZ developers and units are contrary to SEZ Act provisions and it would “virtually kill the SEZ Scheme.”

“Imposition of MAT would practically mean that SEZ developers and units would be subjected to income tax at 20 per cent. With this provision, we have been informed, no investor would like to set up a unit in the SEZ,” it said.

SEZ developers and units have filed petitions against the imposition of both the taxes in courts in Tamil Nadu, Karnataka, Andhra Pradesh and Gujarat, it said, adding that they are seeking legal opinion on the DTC Bill 2011 provisions.

Pointing out that the cut-off date mentioned in the DTC Bill for withdrawal of profit-linked incentives was insufficient (no profit-linked incentives for developers for SEZs notified after March 31, 2012, and for units becoming operational after March 31, 2014), the EPCES said this time period should be extended to March 31, 2015.

Incidentally, many SEZ developers had sought extra time from the Government to implement their existing projects citing the lack of investor interest due to the imposition of new taxes, the DTC proposals and the general economic slowdown. The Commerce Ministry, the nodal department concerning SEZs, has already sought suggestions from stakeholders to revamp the SEZ scheme.

The other main EPCES proposals include exemption from Central Sales Tax for goods supplied from the tax-free SEZs to the Domestic Tariff Area (where normal taxes and duties apply). “Supply of goods from DTA to SEZ is exempted from CST as they are treated as exports.

Similarly supply of goods from SEZ to DTA should be exempted from CST, being import of goods,” EPCES said. It has also sought the revamping of the EOU scheme to attract more investment as well as increase exports and employment.


Published on January 10, 2012

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