The government should provide a stable policy framework coupled with incentives to encourage more investments in special economic zones (SEZs), industry body Assocham has said.
The Minimum Alternate Tax (MAT) has discouraged investments as the industry has been expressing concern over the tax imposition on the book profits of SEZ developers and units. Therefore, there is a need for stable policy with long-term incentives, Assocham said.
“The government should do away with 18.5 per cent levy of MAT imposed on SEZ developers, units and 15 per cent dividend distribution tax on SEZ developers announced in the Union budget 2011-12,” Assocham President R N Dhoot said.
Major SEZ developers are concerned about the deadline for profit-linked deductions with introduction of the Direct Tax Code (DTC) from April 1, 2013, the industry body said.
The code, which will replace existing Indian Income Tax Act 1961, intends to cut tax rates to bring more people and companies under the tax net, phase out profit-linked exemptions for companies and replace them with investment-linked incentives.
Under the SEZ Act, SEZ units get 100 per cent tax exemption on profits earned in the first five years of operation, a 50 per cent exemption for the next five years and another 50 per cent exemption on re-invested profits in the following five years.
SEZ developers, on the other hand, get 100 per cent tax exemption on profits for 10 years, which they can choose to invoke within the first 15 years of operation.
Besides, Assocham said benefits of indirect taxes to SEZ developers and units, as intended under the SEZ Act, must continue under the proposed Goods and Services Tax (GST) regime.
“Any modification in the same might send a strong signal that government is not keen to promote the SEZ policy, thereby, hurting investments from global investors,” it said.
Out of 381 notified zones in the country, only 148 have become operational. The maximum number of them are in sectors such as IT/ITES, engineering, electronics, hardware and textiles.
Exports from SEZs grew by 23 per cent to Rs 72,255 crore during the first quarter of 2011-12.