The Associated Chambers of Commerce and Industry of India has called for the scrapping of the Minimum Alternative Tax (MAT) in Special Economic Zones (SEZs).
According to ASSOCHAM President Rajkumar Dhoot, the imposition of the MAT has completely undermined the basic concept and intention of establishing an
SEZ unit. Dhoot believes that the imposition of MAT will make SEZ units unattractive, as it will outweigh the other tax benefits offered to an SEZ unit.
Under the SEZ Act 2005, the five main aims of SEZs are: the generation of additional economic activity; the promotion of exports of goods and services; the promotion of investment from domestic and foreign sources; the creation of employment opportunities and the development of infrastructure facilities.
SEZs offer exemption from central sales and service taxes, along with certain time-limited income tax exemptions. At present, there are 161 operational SEZs out of a total 588 formally approved.
However, the revelation in the 2011 budget speech that SEZ firms would have to pay MAT at a rate of 18.5% came as a huge surprise to most people, including even the Indian Commerce Secretary, who said at the time that the tax could damage India's image as a safe place to invest. He also warned that there was the possibility that firms could take the government to court over breach of contract.
The Finance Ministry's reason for withdrawing the tax break was that SEZs had drained revenue, and that the new MAT would make the corporate tax burden fairer.
Source : tax-news.com