The Hindu Business Line : Clarify tax exemption status for SEZs, says export promotion council

New Delhi, Sept. 25 The Export Promotion Council for export-oriented units (EOUs) and special economic zones (SEZs) (EPCES) on Friday sought clarification on how the benefits conferred under the SEZ Act would be safeguarded for the dedicated export enclaves, after implementation of the Direct Tax Code.

In a statement issued here, the Council’s Director-General, Dr L.B. Singhal, said the provisions set out in chapters 3, 9 and 12 of the discussion paper of Direct Tax Code are not in consonance with the existing provisions of the SEZ Act, which is a stand-alone Act, designed to provide certain benefits to SEZ units and SEZ developers.

He said based on the provisions made in the SEZ Act, 579 SEZs have been granted formal approval and 335 such SEZs have been notified.

He said the investments in these SEZs are being made based on the premise that SEZ developers would get the benefits under the Income-Tax Act 1961, as provided in the second schedule of the SEZ Act, 2005.

Hence, these benefits should be continued.

As the Council is getting a spate of queries from SEZ developers and SEZ units and with international investors seeking clarity on this facet, the Council urged the Ministry of Finance to clarify on continuation of benefits under Income-Tax Act to SEZ units, SEZ developers, offshore banking units (OBUs) and international financial services centres (IFSCs) located in the SEZ.

Dr Singhal stated that SEZs, by nature, are long gestation projects.

A multi-product SEZ, which has to be developed over a minimum area of 1,000 hectares, normally takes 7 years to be fully operational and such projects involves huge investment. These projects need to be assured of long-term continuity of the scheme.

An SEZ developer, who is in the process of developing an SEZ, now has to be assured that the SEZ units, which will be coming up in the future in these SEZs, will be exempt from income-tax as provided for in the present SEZ Act.

Investments

Though the draft Direct Tax Code and the discussion paper are likely to be made operational from 2011, this position, relating to the benefits under SEZ Act, need to be clarified immediately as SEZ developers cannot wait for development of the SEZ till the position is clarified in 2011.

The SEZ scheme has done extremely well after operationalisation of the SEZ Act and Rules on February 10, 2006 as in the SEZs, incremental investment of Rs 1,10,605 crore has been made and the exports from SEZs have gone up from Rs 22,840 crore in 2005-06 to Rs 99,689 crore in 2008-09 .

Hence, the Council seeks immediate clarification from the Ministry of Finance on the proposed Direct Tax Code so that investment, exports and employment in the SEZs are further accelerated and there is no uncertainty in the minds of the investors, relating to the SEZ scheme.

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