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The Prime Minister’s Office (PMO) is likely to take a call on restoring tax benefits to Special Economic Zones (SEZs) in a meeting with the Commerce Ministry on Thursday.
Principal Secretary to the Prime Minister Nripendra Mishra will meet Commerce Secretary Rajeev Kher to discuss the taxation issue in detail and the various options available to deal with the matter, a Commerce Ministry official told BusinessLine .
“The meeting will be a decisive one. Whatever the PMO decides is likely be the final word on the matter,” the official said.
The PMO will also meet officials from the Department of Industrial Policy & Promotion (DIPP) to discuss progress in the industrial corridors and smart cities.
The Commerce Ministry has been trying to convince the Finance Ministry to withdraw the Minimum Alternate Tax (MAT) of 18.5 per cent and Dividend Distribution Tax (DDT) of 15 per cent abruptly imposed on the zones in 2012 which had brought to an end the 100 per cent tax holiday promised to units and developers for a 10-15 year period.
It has argued that the taxes were driving away investments from the zones at a time when the BJP Government stressing on boosting manufacturing.
The Finance Ministry, however, is worried about the revenue losses involved estimated at about ₹13,000 crore a year.
While the Commerce Ministry wants a complete roll-back of MAT and DDT, it could also be ready for a compromise solution if the PMO suggests it. One such solution could be restoring tax benefits to manufacturing SEZs, not including gems & jewellery and petroleum products, as these account for only ₹50,000 crore of exports every year.
Since profit margins in such sectors are lower than IT SEZs, these would account for revenue losses not more than ₹400 crore a year, the official explained.
Another solution could be to roll-back the taxes partially.
Out of 566 SEZs approved by the Government so far, only 185 SEZs have come into operation. According to the Export Promotion Council for EoUs and SEZs, this gap is mainly due to introduction of MAT and DDT.
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.
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