The announcement of a special economic zone (SEZ) is invariably surrounded by hype and public statements promising how they could change the face of the economy, but do most SEZs actually live up to the tale that’s told at the start?
In Karnataka, for instance, of the 60 approved SEZs, as many as 35 have failed to take off. The downturn has been attributed to levy of 20 per cent of minimum alternate tax (MAT) and dividend distribution tax (DDT) on developers and occupiers of SEZs in 2012. And the story seems to be the same across the country — of the 524 approved SEZs, 328 are non-functional, with newly formed Telangana at the top with 36 such SEZs.
One of the key reasons for the failure of SEZs is their inability to adapt to a “post tax holiday” situation, said an official in the Industries Department, who requested anonymity. And this has become more complicated with the Union Finance Ministry refusing to accept proposals for continued tax concessions citing revenue losses, according to Industries Department sources.
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From the Union government’s point of view, “revenue foregone due to direct tax exemptions is only 0.3 per cent of the country’s GDP (2013–14) and 12 per cent of total revenue foregone due to direct taxes,” said a latest study of the Indian Council for Research on International Economic Relations.
Given this situation, it is impossible to continue tax holidays and sops for an extended period of time, officials said.
On the social side, SEZs have generated 1.93 lakh jobs in the State and their collapse could result in a huge crisis. Also, 2,753.41 hectares of land has been acquired for 60 SEZs, but only six government owned and 19 private developed SEZs have become functional on 1,998.1 hectares. A total of 199 units are operating in these SEZs.
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Most of the approved SEZs in pharmaceuticals, textiles, agro and food processing, engineering, IT/ITES have remained only on paper with the break-up at: Bengaluru (18), and Bengaluru Rural, Dakshina Kannada and Mysuru (4 each).