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With a steady rise in de-notification of Special Economic Zones (SEZs) and increased delay in implementation of projects, the Commerce Ministry has once again made a case for exemption or lowering of Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) on units and developers in the forthcoming Union Budget.
It has also asked the Finance Ministry to permit SEZ units to sell in the domestic market by paying concessional import duties in line with what is paid by India’s Free Trade Agreement (FTA) partners, a government official told BusinessLine .
“Last year, the Centre made SEZs eligible for export incentive schemes such as Merchandise Export from India Scheme, but that is not enough. The Finance Ministry has to do more if it wants the SEZ scheme not to collapse,” the official said.
The official added that the government was flooded with applications requesting more time for implementation of projects and for de-notification of zones, while the number of new proposals had dwindled. The BoA de-notified 56 SEZ proposals in February last year and 22 more in May.
Big players, such as Navi Mumbai SEZ co-promoted by Mukesh Ambani, have sought numerous extensions for implementation of their projects citing the imposition of MAT and DDT as one of the factors for delay.
In its Budget proposal to the Finance Ministry, the Commerce Ministry has suggested that the MAT and DDT, imposed on SEZs in 2011, be either fully withdrawn or brought down significantly as it was the biggest disincentive for investors who had been promised a tax holiday for the initial years of operation.
Under pressureAccording to the Export Promotion Council for SEZs, units are not able to recover MAT credit charged at 18.5 per cent within the stipulated period of 10 years. It has urged the Centre to reduce MAT to at least 7.5 per cent so that exporters from SEZs are able to set off those advance tax MAT paid within the stipulated period, and the government also gets some revenue.
Another proposal being pushed by the Commerce Ministry relates to lowering of customs duties to be paid by SEZ units when they sell their goods in the domestic market by bringing it in line with the best rates offered to the country’s FTA partners.
“If India allows a particular item to be imported from an FTA partner country, say Japan, at nil duty or at a concession, the same rate should be extended to units in SEZs,” the official said.
The Commerce Ministry’s argument is that with fall in global demand and uncertainty gripping major economies, SEZ units should not be deprived from accessing the domestic market.
At present, there are 204 operational SEZs in the country with a total investment of ₹3,63,112.46 crore and providing employment for 15,44,526, according to government figures. Exports from SEZs in 2013-14 at $82.35 billion were 8 per cent lower than the year before.
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