Inspired by the Finance Ministry’s decision to reduce the Minimum Alternate Tax by half in International Financial Services Centres (IFSCs), the Ministry of Commerce & Industry is hopeful that Budget 2018-19 will either eliminate MAT or reduce its rates in Special Economic Zones (SEZs), too.

“Last year, the Finance Ministry listened to part of the plea made by SEZs by giving units and developers more time to use MAT credit, by allowing carry forward up to a period of 15 years, instead of 10. We are hopeful that this year there would either be an elimination of MAT or a reduction in rates which will be in line with the concession given to IFSCs,” a government official told BusinessLine .

To provide a competitive tax regime to IFSCs, Budget 2015-16 had proposed that units deriving their income solely in convertible foreign exchange would be levied a MAT of 9 per cent, as against the earlier 18.5 per cent.

SEZ developers and units have been urging the government to reduce MAT, which now stands at 18.5 per cent, and adds up to about 21 per cent with the inclusion of surcharges and cess, ever since it was applied on the sector in April 2012. They argue that the imposition of MAT is against the SEZ rules of 2006 which provide for a complete tax holiday for a specified block of years. It also disincentivises investors, they say.

“SEZs have been pleading for a re-look at the decision to impose MAT as they say it has been preventing units from coming up in the established SEZs and fresh investments from flowing into the sector because of the policy uncertainty,” the official said.

There are a total of 423 SEZs in the country that have been formally approved, of which 356 have been notified. But only about half the formally approved SEZs — 222 — are operational as investments into units have slowed down over the last few years following the imposition of MAT and an overall downturn in the investment climate.

Related Topics
comment COMMENT NOW