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Special Economic Zones seem to have emerged as a clear looser. Given the impending implementation of the DTC, the Finance Minister indicated his desire to keep the changes on the direct taxes front to a minimum except on matters requiring immediate attention. It seems that a considerable amount of attention has been devoted to SEZs. Amongst a slew of changes announced, both the SEZ developers and SEZ units (including IT companies) will now be liable to pay Minimum Alternate Taxes at 18.5% (plus surcharge and cess). In addition to this, the exemption from dividend distribution tax (DDT) currently enjoyed is also sought to be withdrawn, resulting in SEZ developers having to pay DDT at 15%.
Contrary to the expectation of the SEZ community, the instead of providing relief against the highly contentions proposals in the DTC has advanced the implementation of the same by a year which is certainly not going to go down well with the industry.
The Finance Minister has in fact gone one step ahead by extending the concept of MAT (hitherto limited to companies) to Limited Liability Partnerships enjoying the tax holidays provided to SEZ units and developers.
The changes for the SEZ sector are clearly far-reaching and signal the intent of the government as it moves towards the implementation of the DTC.
(The author is Partner, BMR Advisors. The views are personal.)
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