Economy

Commerce ministry to take up differential MAT on SEZs

Guidelines for Gujarat’s IFSC come under financial sector regulators.

The Commerce Ministry may soon raise with the Finance Ministry its concern over the differential tax rate proposed in the budget for the International Financial Services Centre (IFSC) to come up in a Special Economic Zone in Gujarat, and the rest of the SEZs.

As part of the budget on February 29, a reduced Minimum Alternate Tax (MAT) rate of nine per cent was proposed for the IFSC in an SEZ in Gujarat, while retaining 18.5 per cent MAT on all other SEZ developers and units.

IFSC comes under the ambit of the SEZ Act as the legislation defines it and states that the Centre may approve the setting up of an IFSC in an SEZ and prescribe requirements. The Gujarat International Finance Tec-City (GIFT) in Gandhinagar (Gujarat) is the only IFSC in India.

In pre-Budget discussions with the finance ministry, the commerce ministry had pitched for removal or reduction of MAT on all SEZ developers and units. The ministry had sought an SEZ-specific package to make sure that these tax-free enclaves are the focal point of the ‘Make in India’ initiative.

The commerce ministry, which is keen to ensure greater manufacturing sector-exports from SEZs, is expected to hold discussions next week with the representatives of SEZ developers and units as well as the Export Promotion Council for Export Oriented Units and SEZs (EPCES), official sources told The Hindu.

The commerce ministry will approach the finance ministry after taking inputs from the SEZ sector, they said.

The commerce ministry had pointed out that the export-oriented SEZ sector, which has been playing an important role in boosting India’s overall exports, has been witnessing a slowdown in terms of investment, exports and employment generation following the previous UPA Government, in the FY12 Budget, imposing an 18.5 per cent MAT on SEZ developers and units as well as Dividend Distribution Tax (DDT) on developers.

Interestingly, the FY’17 Budget has proposed that companies located in IFSC shall not be liable to DDT while retaining the same on SEZ developers.

The imposition of MAT and DDT on SEZs has resulted in lesser number of SEZ notifications, slower operationalisation of SEZs and more applications for de-notification of approved SEZs, EPCES said. These taxes also dented the investor-friendly image of SEZs and created uncertainty in the minds of foreign and domestic investors, EPCES said.

EPCES said MAT on SEZs should be either withdrawn or reduced to its original rate of 7.5 per cent. Another issue that the commerce ministry is likely to take up with the finance ministry is the FY’17 Budget proposal of profit-linked deductions to new units in SEZs commencing activity on or before March 31, 2020.

The commerce ministry and EPCES would demand that profit-linked deductions should be available for new units in SEZs starting operations by March-end, 2023. The finance ministry was initially considering a proposal to abolish all direct tax benefits for SEZs not operationalised before April 1, 2017 but then decided to extend the deadline only for SEZ units till March 31, 2020. EPCES has now said a similar extension should be granted to SEZ developers commencing operations before March 31, 2020 as well instead of March 31, 2017 as is currently proposed.

On the issue of GIFT SEZ being given a special treatment, official sources said the guidelines applicable for IFSC come under the purview of financial sector regulators such as the RBI, IRDA and SEBI. They said mainly it is the finance ministry that is involved in decisions on IFSCs adding that it was not the commerce ministry that had proposed a reduced MAT rate only for GIFT-City SEZ.

The revenue impact of the incentive of deduction of export profits of units located in SEZs is projected to go up from Rs.16,686 crore in 2014-15 to Rs.17,620 crore in 2015-16.

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Printable version | May 30, 2020 8:43:31 AM | https://www.thehindu.com/business/Economy/commerce-ministry-to-take-up-differential-mat-on-sezs/article8310092.ece

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