SEZs may not see investor interest

The SEZ sector has been experiencing a slowdownin terms of exports.

The SEZ sector has been experiencing a slowdownin terms of exports.  

The tax incentives proposed by the government for new units in Special Economic Zones (SEZ) in the FY’17 Budget may not actually revive investor interest unless it either withdraws or reduces the Minimum Alternate Tax (MAT) on these tax-free enclaves, according to the Export Promotion Council for Export Oriented Units and SEZs (EPCES).

While welcoming Finance Minister Arun Jaitley’s Budget proposal that profit-linked deductions will be available for new units in SEZs commencing activity before March 31, 2020, EPCES Vice-Chairman Rahul Gupta said the MAT already imposed on new SEZ units will not allow the full impact of the benefit announced in the FY’17 Budget to be felt.

The SEZ sector, which is export-oriented, has been experiencing a slowdown in terms of exports, investment and employment generation following the imposition of an 18.5 per cent MAT on SEZ developers and units as well as Dividend Distribution Tax (DDT) on developers by the previous UPA Government in the FY12 Budget.

The imposition of MAT and DDT on SEZs has led to reduced number of SEZ notifications, slower operationalisation of SEZs and increased number of applications for de-notification of approved SEZs, EPCES said.

It has also dented the investor-friendly image of SEZs and created uncertainty in the minds of foreign and domestic investors, EPCES said.

It said MAT should be totally withdrawn or reduced to its original rate of 7.5 per cent.

The finance ministry (the Central Board of Direct Taxes) was initially considering a proposal to abolish all direct tax benefits for SEZs not operationalised before April, 2017.

The commerce ministry and representatives from the SEZ sector had pitched for extending the ‘Sunset Clause’ on SEZs up to 2022-23.

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