SEZ Developers Set To Move Court On MAT Levy.

The budget proposal made by finance minister Pranab Mukherjee to impose minimum alternate tax ( MAT) of 18.5% on book profits of special economic zone (SEZ) developers has expectedly not gone down too well with industry and is proving be a big dampener for a lot of the developers and units operating in the zone. SEZ developers are all set to move court on the MAT levy, reports CNBC-TV18. Developers had cried foul a day after the finance bill had been passed as their appeal to the government to drop the clause did not cut ice with the finance ministry.

Apart from the MAT, the budget has also proposed to impose dividend distribution tax on SEZ developers.

The commerce and the finance ministries were reportedly heading towards another face off on the levy of the MAT on SEZs. At stake, are thousands of crores of investments in these tax free export hubs which won't be tax free any more if MAT at 18.5% is imposed.

Representations were also made to the Prime Minister, finance minister and the commerce minister to change the goal posts before the passage of the finance bill.

Rebuffed SEZs will now move court individually and collectively. The developers are armed with strong legal advice in their favour.

A convenor of the SEZ panel confirmed to CNBC-TV18 that all panel members have got legal advice. The legal advice received by the panel clearly says that the finance bill cannot modify the SEZ Act. Section 51 of the SEZ Act overrules all other acts, the convenor of the SEZ panel said. Approximately Rs 1.95 lakh crore has been invested in new SEZs over the last five years, while 5 lakh new jobs have been created during the same period by SEZs with more investment in the pipeline.

However, with the government firing a salvo in the budget, companies are now reconsidering setting up new SEZ units. Meanwhile, sources in the finance ministry have said that developers of SEZs have no reason to cry foul as they have gross margins in excess of 30-40%. The ministry contented that investments were shifting from domestic tariff areas to SEZs. Sources added that the ministry believes that the parliament is sovereign with powers to legislate. Courts can only interpret existing law, said sources.

Under the SEZ Act, units operating are entitled to 100% tax exemption on profits earned for the first five years, while developers get an exemption for ten years. In addition, a 50% exemption for the next five years and another 50% tax break on re-invested profits was also allowed in the following five years, which had attracted a slew of realtors to make a beeline for SEZs. India has 582 SEZs formally approved, of which about 130 are in operation.

The budget proposals are expected to take effect from June this year.

Source : moneycontrol.com