The proposal to do away with income tax exemptions to the units coming up in new Special Economic Zones (SEZs) has caused heartburn among investors.

The IT entrepreneurs particularly from the city are in a jittery. Sources told The Hindu that the Ministry of Finance is in the process of finalising Direct Tax Code (DTC) policy to bring about reforms in taxation from next financial year.

The Export Promotion Council for EoUs and SEZs has already submitted a representation and held talks with the Secretary, Ministry of Commerce. Sources said subsequently, the Ministry of Commerce also opposed the proposals mooted by the Ministry of Finance stating that the new DTC would derail the progress of investments and deal a big blow to the SEZs.

Union Finance Minister Pranab Mukherjee wants to introduce new DTC from next fiscal to simplify the taxation system and withdraw the benefits given to various sectors.

O. Naresh Kumar, executive member, Visakhapatnam Information Technology Association (VITA) said on Monday that units in new SEZs would not be entitled for tax benefits if the DTC came into force from April 1, 2011 as per decision taken by Mr. Mukherjee. Mr. Naresh Kumar, CEO of Symbiosys Technologies said there was no consensus in the government with the Ministry of Finance and Commerce having different opinions on withdrawal of tax benefits.

At present, new units in SEZs get tax holiday for first five years and 50 per cent exemption in income tax for subsequent five years. If the new DTC is implemented, the new units have to pay tax from first year of operation itself.

There is also a feeling among some investors that the DTC is mooted to give a fillip to SEZs during current fiscal.

“This is because new SEZs sanctioned and set up this year will continue to avail the tax benefits for next 10 years as DTC would be applicable for units coming up in new SEZs from next financial year,” a promoter of software unit said.

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