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Uncertainty over tax benefits for SEZs restricts investments
By siliconindia
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Tuesday, 13 July 2010, 14:47 IST
New Delhi: The proposed draft of the Direct Tax code on the Special Economic Zone (SEZ) policy have started impacting the flow of investments due to uncertainty over tax benefits for SEZs. This proposed code on SEZ policy has brought the perturbed commerce department to discuss with the Finance ministry.
On the fallout of the proposed code on the SEZ policy, the commerce department is in discussions with the finance ministry already.
According to a commerce department official, the department is getting a lot of enquiries from investors regarding their investments once the DTC comes in. He further added that once the new tax code comes in, the profit projections made on the basis of the existing SEZ Act are likely to go awry.
The board which approves new zones has received only three applications for consideration in its meeting scheduled on Tuesday. In the previous two meetings, the board had received six proposals each, while in each of the preceding two meetings, it has received eight.
The direct taxes code is expected to be implemented from the next fiscal year. The draft direct taxes code has proposed withdrawal of exemptions for new units that come up after the tax code is implemented.
As the proposed DTC has no provision of giving any sector exemption from this levy, SEZs are likely to attract minimum alternative tax (MAT) of 18 percent.
The shifting from profit-based tax exemption to investment-based tax exemption for developers would have an effect on sectors with low investments like IT.
Under the SEZ Act, SEZ units get 100 percent tax exemption on profits earned for the first five years, a 50 percent exemption for the next five years and another 50 percent exemption on re-invested profits in the following five years. SEZ developers, on the other hand, get 100 percent tax exemption on profits for ten years which they can choose in the block of the first fifteen years.