No tax relief for SEZs, rules Chidambaram.

NEW DELHI: In a major setback to special economic zone (SEZ) developers, finance minister P Chidambaram has turned down the commerce department's plea to cut the minimum alternate tax (MAT), which was imposed two years ago.

A lower or no tax burden was cited as one of the main drivers for boosting investment in what were until recently duty-free enclaves. The commerce department had made a case for reversing Chidambaram's predecessor Pranab Mukherjee's move, even if partially, on the grounds that the production in the SEZs were meant for exports and would help increase shipments out of the country, resulting in a lower current account deficit (CAD) in the months ahead.

MAT is levied on firms with no taxable income but showing book profits.

But, senior government officials said the finance ministry had written to the commerce and industry ministry, saying that it would be difficult to go back to the earlier regime. Sources said that apart from the prospect of foregoing potential revenue during a tough fiscal environment, the finance ministry is also wary of moving into the designated duty-free areas from the so-called tariff area.


Given the stance, the commerce department has given up on the amendment that industry was expecting in the foreign trade policy expected to be announced next week. The revenue department has also opposed the move to allow developers to exit zones built by them, arguing that it would be tough for the government to impose conditions once there was a change of management.

The commerce department, however, seems to have made some headway on getting the finance ministry to tone down its opposition to reduce the minimum area requirement, although it is not clear if North Block would accept the proposal the way it was suggested (see table).

"There appears to be some agreement on this front. Finally, what will come out in the notification depends on what revenue and commerce secretaries agree on," said an official on condition of anonymity.

Another source said the commerce department is awaiting a communication from the finance ministry before incorporating changes in the Foreign Trade Policy, including extending some of the benefits under export promotion schemes.

The commerce department has been pushing a package for SEZs for over a year now, but it is only now that the finance ministry has agreed to consider some of the concessions, given the dire position of exports, which have decreased by over 4% during April-February, 2012-13.

During the course of the discussions, the finance ministry pruned some of the sops such as those available for non-processing areas that would have allowed those living outside the zones to use health or education facilities.


Source : timesofindia.indiatimes.com