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Leading developers of special economic zones (SEZ) from across the country, including ONGC, Reliance, DLF, Mahindra World City and Unitech, have expressed concern over the Budgetary proposal to impose Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) on SEZs.
They have urged the Government to reconsider the proposal.
MAT is a levy on book profits of companies that do not have any taxable income either because of tax exemptions or actual losses. The SEZ Act exempts SEZ developers and units from MAT.
The Finance Minister, Mr Pranab Mukherjee, had in the 2011-12 Budget proposed to impose 18.5 per cent MAT on the book profits of SEZ developers and units, and DDT on SEZ developers. The Commerce Ministry has sought a roll back of this proposal.
A high-powered delegation of SEZ developers is seeking appointment with Mr Yashwant Sinha, Chairman, Parliamentary Standing Committee on Finance, to highlight that the imposition of MAT and DDT on SEZs would not only affect exports from these enclaves and job creation but also discourage the inflow of foreign and domestic investments into them.
They will point out to Mr Sinha, a senior BJP leader and former Union Finance Minister, that SEZs contribute around 36 per cent of the country's exports, Mr Ajay Nijhawan, Convenor, the Export Promotion Council for SEZs and export-oriented units Panel on SEZ Developers, said in a statement on Friday.
Mr Nijhawan said representations on the issue have already been submitted to the Finance Minister, the Commerce and Industry Minister, the Minister of State for Commerce and Industry and the Commerce Secretary.
Amendment
SEZ developers — including representatives of ONGC, Reliance Haryana SEZ (Gurgaon), DLF Ltd (New Delhi), Mahindra World City SEZ (Jaipur), Unitech Ltd (New Delhi), Gitanjali Group (Hyderabad), Phonenix Group (Hyderabad), Rajasthan State Industrial Development and Investment Corporation Ltd (Jaipur), K. Raheja (Mumbai) and Uppal Developers — held a meeting early this week here to discuss the implications of imposition of MAT and DDT on SEZs, the statement added.
Mr Nijhawan said in the miscellaneous-provisions section of the Finance Bill, Schedule II of SEZ Act is sought to be amended. He said the Act should not be amended without the Commerce Ministry's approval.
The Commerce Secretary, Mr Rahul Khullar, said on Thursday that “theoretically” the Finance Bill cannot override the provisions of the SEZ Act. He also said imposing MAT on SEZs could result in the affected developers and units dragging the Government to court on the issue.
The Parliamentary panel is going through the Direct Taxes Code (DTC) Bill that proposes to impose 20 per cent MAT on the book profits of SEZ developers and units. MAT was slated to be levied on SEZs with the expected implementation of the DTC from 2012.
Mr P.C. Nambiar, Vice-Chairman of the council, pointed out that the Finance Ministry introduced the DTC Bill, 2010 during the winter session of Parliament, and it has been referred to the Parliamentary Standing Committee on Finance. The Budgetary proposal to impose MAT and DDT on SEZs has come as a shock, he added.
Mr O.P. Kapoor, Deputy Director General of the council said during April-December 2010, exports from SEZs recorded 47 per cent growth to touch Rs 2,23,132 crore against Rs 1,51,785 crore during the period in 2009-10.
The Government has formally approved 582 SEZs, of which 374 SEZs have been notified as on February 17, 2011 and 130 SEZs are operational as on December 31, 2010, he said.
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