The Finance Ministry is yet to give a go-ahead to the Commerce & Industry Ministry’s proposal of offering a concessional corporate tax rate of 15 per cent for an extended period to all greenfield and some brownfield units in the ‘development hubs’ that are to come up once the proposed Development of Enterprise and Service Hubs (DESH) legislation replaces the existing Special Economic Zones (SEZ) Act, a source tracking the matter has said.

“The Commerce Department wants that the concessional corporate tax rate of 15 per cent, at present available to all new manufacturing units in the country till March 2024, should be extended for 15 years to units in DESH. This is a matter under the jurisdiction of the Central Board of Direct Taxes and has not yet been cleared by it,” the source told BusinessLine.

Cut in tax

The Centre had reduced corporate tax rates to 22 per cent from 30 per cent for existing companies and to 15 per cent from 25 per cent for new manufacturing companies in 2019. While the 15 per cent corporate tax rate was on offer for new manufacturing companies that start operations by March 2023, it was extended by another year in this year’s Budget.

“Extension of the concessional corporate tax rate for a longer period of time for units in DESH could play an important role in attracting investments into the DESH hub. But the Finance Ministry also has to keep in mind its revenue considerations. Hopefully a decision would be taken soon on the matter,” the source said.

The Finance Ministry had proposed to replace the existing Special Economic Zones (SEZs) Act with a new DESH Act in this year’s Union Budget to build more inclusive economic hubs, revive interest of investors in SEZs and bring the SEZ rules in compliance with WTO rules.

The Commerce & Industry Ministry, which is working on the draft DESH Bill, seeks to come up with a policy that will promote manufacturing and services for both international and domestic markets.

Replacing SEZ Act

The SEZ Act, which was notified in 2006, became less attractive for investors after introduction of Minimum Alternate Tax and the setting in of the sunset clause on direct tax exemptions. The Net Foreign Exchange earning clause brought the incentives given to SEZs in conflict with WTO rules.

Other incentives being proposed under DESH include retention of zero-rating of IGST (integrated goods and services tax) on domestic procurement by a SEZ unit, continuation of indirect tax benefits to developers and allowing depreciation on sale of used capital goods cleared to domestic tariff areas.

The Desh Bill was to be introduced in the Monsoon session of Parliament but got delayed as the Commerce & Industry Ministry wants to hold some more discussions with other Ministries and Departments.

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