Income tax benefits for new SEZs not possible: Revenue Secretary

June 18, 2010 07:07 pm | Updated 07:07 pm IST - New Delhi

Dashing the industry’s hopes for a rethink by the Finance Ministry on the proposal for doing away with Income Tax exemption for Special Economic Zones, Revenue Secretary Sunil Mitra said on Friday profit-linked deductions are not possible.

“If SEZs are to be given concessions, we do not think these have to be tax concessions henceforth,” Mitra told reporters here.

According to the revised Direct Tax Code draft, the tax exemptions for the SEZs have been provided only for existing units and not new units.

With the draft DTC denying tax exemptions to new units in the SEZs, the fate of 469 approved Special Economic Zones, which are yet to become operational, hangs in the balance.

The industry said the income tax benefits were the only attraction for investments in SEZs, which accounted for about 25 per cent of the country’s exports in 2009-10.

The provision in the new draft would mean the end of new investment by promoters, who have received formal approvals from the Commerce Ministry after acquiring land for their projects, Export Promotion Council for EoUs and SEZs (EPCES) Director-General L.B. Singhal said.

“It really amounts to closing down a scheme, which has given exports of Rs. 2,20,000 crore, investment of Rs. 1,50,000 crore and employment of 500,000,” Singhal said.

The Revenue Secretary said the government may consider giving investment-linked benefits to the upcoming SEZs.

“...Investment-linked deductions should be possible. Beyond that, profit-linked deductions are not good because significant amount of revenues have to be forgone,” Mitra said.

Right from the beginning of the SEZ schemes in 2006, the Revenue Department has been expressing concern over the revenue loss.

“They (profit-linked deductions) create distortions and they are not good for the economy,” the secretary said.

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