Restoration of tax sops for SEZs under study

Restoration of tax benefits for SEZ developers and units is back under the BJP Government’s consideration, with the Commerce Ministry making a fresh pitch for it in the forthcoming Budget.

“The Finance Ministry has not been able to restore the tax exemptions for SEZs in the on-going fiscal because of resource constraints. But we are hopeful that in the new fiscal, the Government will be in a position to allow some tax sops for the zones,” a Commerce Ministry official told BusinessLine .

The Commerce Ministry, in its Budget proposal for 2015-16, has asked the Finance Ministry to do away with the Minimum Alternate Tax of 18.5 per cent and Dividend Distribution Tax of 15 per cent imposed on SEZs [special economic zones] by the UPA Government in 2011-12. The tax benefits are necessary to infuse life back into the zones that have witnessed a sharp fall in investments as well as a slowdown in exports following the withdrawal of the tax sops, it has argued. The Finance Ministry, so far, has not been too keen to restore tax benefits as it could lead to revenue losses involved estimated at about ₹13,000 crore a year.

“Although our proposal talks about complete exemption, we are ready for some compromise if required,” the official said. This means that MAT and DDT could still continue to be applied, but at a lower rate.

The SEZ Act passed in 2005 promised units a five-year complete tax holiday on profits, followed by 50 per cent exemption on profits over the next five years. Developers are promised a tax holiday for 10 consecutive years that they can choose in a bracket of 15 years. A number of developers including RIL, Ansals, Essar, DLF and Omaxe have got some of their SEZs denotified — fully or partially — in the last four years since the tax exemptions were rolled back. There are more than 200 approved SEZs that are yet to be made operational.

“While imposition of DDT and MAT might have adversely affected the business models of existing units, the consequences might be far reaching in raising doubts about the stability of policy environment among investors and adversely affecting future domestic and foreign investments in SEZs,” according to a recent survey on SEZs in India carried out by research body ICRIER.

Post-2009-10, the growth rate of SEZ exports flattened compared to the rest of the economy and exports from SEZ declined in 2013-14 when the exports from the rest of the economy witnessed a healthy growth of 12 per cent over the previous year, the study said.

A total of 564 SEZs have been approved under the SEZ Act of which 388 are notified and 192 are operational. As of March 31, 2014, the SEZs have contributed to an investment of ₹3,01,656 crore have generated 12,77,645 direct employment and ₹4,94,077 crore were exported from the SEZs, the study pointed out.

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