Panel to discuss removal of tax sops for SEZs

New Delhi, Feb. 3 The Empowered Group of Ministers (eGoM), under the Chairmanship of the Union External Affairs Minister, Mr Pranab Mukherjee, is meeting here on February 4 to examine the merit of the Finance Ministry’s plea for removing a slew of tax exemptions provided to the Special Economic Zone (SEZ) and their developers.

Sources in the Government told Business Line here that the Finance Ministry has drawn the attention of the eGoM on the revenue loss on account of tax exemptions to units in SEZs which has been estimated to be Rs 1,02,621 crore for the period 2006-07 to 2009-10.

Out of this, the revenue loss due to direct taxes is reckoned to be Rs 53,740 crore and on account of indirect taxes Rs 48,881 crore.

In fact the Finance Ministry included in last year’s Budget document, for the first time, the aggregate revenue loss estimates arising out of such tax breaks to highlight the need for removing such exemptions.

The sources said that the SEZ Act came into operation only in February 10, 2006, duly underpinned by the SEZ Rules, and it was about to complete two years of its advent.

The policy has the express remit to generate additional economic activity, promote exports of goods and services and investment from domestic and foreign sources, create employment opportunities, and develop dedicated infrastructure within the zone.
Exemptions

Accordingly, SEZs were conferred certain tax exemptions including in the import/domestic procurement of goods for development, operation and maintenance of SEZ units.

They were given 100 per cent income tax exemption on export income under Section 10AA of the I-T Act for the first five years, 50 per cent for the next five years thereafter, and 50 per cent of the ploughed back export profit for the next five years.

For the developers too, income tax exemption for a block of 10 years in a block of 15 years in a consecutive order, and exemption from dividend distribution tax were provided. For both the developers and units, tax exemption was extended from minimum alternate tax, central sales tax, and service tax.

The sources said that the Finance Ministry’s target on tax exemptions granted to SEZ units and developers, particularly income tax exemptions on a graded phase spanning over 15 years particularly when they have not even completed the first five-year 100 per cent exemptions, is bound to upset the existing units or the new entrants.

They said that even before the Act completes its second year, any such scuttling of incentives embedded in the Act would create unwarranted panic among investors and potential investors, both domestic and foreign, besides injecting policy instability.

The Director General of the Council for SEZ and 100 per cent export-oriented units, Mr L.B. Singhal, said that just prior to 2000, when the SEZ policy was announced, exports from the then free trade zones were only Rs 8,000 crore, which shot up to Rs 34,789 crore in 2006-07 and are likely to be Rs 67,300 crore this fiscal.

He said the benefits derived from functioning SEZs were self-evident from the investment, employment, exports and infrastructural developments additionally generated.

The sources said the benefits derived from multiplier effect of the investments and additional economic activity in the SEZs and the employment created thus would far counterbalance the putative loss arising out of tax exemptions.

Hence, they say that the Department of Commerce would put up a stout defence in the eGoM to ensure that the hard-won incentives which had resulted in tangible gains to the economy through the SEZs-generated efficiency and income should not be nullified by any hasty withdrawal of benefits statutorily provided to investors.

EGoM meeting on SEZs deferred

NEW DELHI: (5 Feb) The meeting of the empowered group of ministers on special economic zones (SEZs), which was scheduled for Monday to look at important issues like the removal of land ceiling for Reliance’s Jhajjar project and DLF’s Gurgaon project, has been postponed.

The meeting was also scheduled to take a call on the alleged flouting of norms in Essar’s steel SEZ in Hazira.

Without giving a reason for the postponement of the meeting, commerce & industry minister Kamal Nath said a fresh date for the meeting would be decided by the EGoM chairman and external affairs minister, Pranab Mukherjee.