Commerce Ministry to move parliamentary committee on tax laws for SEZs

28 Jun 2011 Evaluate

The special economic zone meant for creating export hubs are in danger because of changes in the tax laws, the commerce ministry has decided to appeal its case before the parliamentary standing committee looking into the Direct Tax Code Bill (DTC) in the monsoon session which is about to start in a month. The direct taxes code bill is with parliament's standing committee on finance.

As per the exporters’ organization, 15 approved special economic zones are considering dropping their projects after the budget for 2011-12 imposed Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) on such zones.

The commerce department official said that they will make a case against the imposition of MAT and DDT this fiscal as SEZs have been promised tax-free operations in the initial years by the SEZ Act, adding further the official said, it is now becoming clear that it would not be viable for a number of investors to continue if faced with this unexpected financial burden.

The Special Economic Zone Act gives five years of tax holidays on profits to developers and units. The DTC bill introduced by finance ministry has recommended finishing all the tax holidays through imposition of MAT and also linking tax breakers to investment instead of profits. Although, before the DTC bill be approved the finance ministry in this year’s budget, imposed an 18% MAT and 15% DDT on SEZs. By imposing MAT and DDT, finance ministry wants to recover the losses from tax concession given to SEZs, projected at Rs 1, 75,487 crore in the 2004-05 to 2009-10.

In against to the imposed tax by finance ministry, the industry has argued that the units operating in SEZs are not entitled for export promotion schemes and have to pay full custom duty on what they sell in the domestic market, hence it would not make commercial sense for them to operate in SEZs without tax exemptions.

R K Sonthalia, Kolkata-based SEZ developer and former chairman of export promotion council of EoUs and SEZs, or EPCES said “It is not surprising that developers are pulling out because without the tax breaks it would be very difficult for them to sell to units.” As per the EPCES, Satyam Computer Service, MIDC, S2Tech.com, Essar Hazira, Bengal Shapoorji Infrastructure Development, K Raheja Universal and TCG Urban Infrastructure Holdings are some of the prominent SEZs that are considering de-notification of their zones.

The commerce ministry official said, 'During the next House session, we will oppose the way the SEZ Act was undermined by the finance ministry through the backdoor by using the finance bill.” Special economic zone developers have also filed legal case against the imposition of MAT and DDT in high courts in Tamil Nadu, Andhra Pradesh and Gujarat.

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