The Government is considering policy initiatives such as modifying tax rules and allowing dual use of infrastructure in non-processing areas to incentivise Special Economic Zones (SEZs).

“The Commerce and Revenue secretaries are in talks over issues such as application of Minimum Alternate Tax and Dividend Distribution Tax on SEZs and allowing dual use of infrastructure. We have to incentivise not just exporters but other manufacturers as well for optimum utilisation of the zones. This will also ensure developers get early returns,” said Nirmala Sitharaman, Minister of State (Independent Charge) Commerce and Industry, while addressing a press conference on achievements and road-map for the Commerce Ministry under the BJP regime.

Allowing dual use of infrastructure in non-processing zones means that developers will be allowed to use the infrastructure, for instance shopping malls, hotels or schools, to cater to people living outside the zones as well subject to payment of the applicable taxes.

While stressing that SEZs are an important part of the country’s Foreign Trade Policy (FTP), the Minister said that the five-year policy for boosting foreign trade through various incentives and facilitating measures, to be announced soon ,will be “different’’ from the earlier FTPs.

Although the FTP may or may not include the new policy measures on SEZs, Commerce Secretary Rajeev Kher said that the SEZ package will hopefully be ready soon.

The most tricky issue, however, is implementation of the Commerce Ministry’s proposal to do away with MAT and DDT for SEZs. Since the Finance Ministry is not too keen to do away with the taxes totally because of the potential revenue loss, the two Ministries are trying to agree on a middle path where the tax would be reduced partially, or the reduction would be applicable to only certain sectors.

The imposition of MAT of 18.5 per cent and Dividend Distribution Tax (DDT) of 15 per cent on SEZs by the UPA Government in 2011-12 resulted in a slowdown in investments in the zones.

The SEZ Act promises units a five-year complete tax holiday on profits, while developers are promised a tax holiday for 10 consecutive years in a block of 15 years.

Many big developers have opted out of approved projects in the last couple of years and there are as many as 203 approved SEZs that are yet to become operational.