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States limit sops to SEZs

New Delhi, May 5: One more step has been taken to make special economic zones, which have become a political hot potato, less attractive to investors and more acceptable to critics.

State governments have decided not to give any tax exemption to non-processing areas in SEZs, which means such relief could be confined to activities in half the area of the zones.

Non-processing area refers to real estate and other businesses that fall outside the core objective for which an SEZ has been set up. Under pressure from the Left, the minimum processing area of all SEZs had been increased to 50 per cent.

A committee of state finance ministers today took the decision to scale back the sweep of exemptions. The decision is not expected to raise the costs for SEZs substantially as they will still enjoy central exemptions. But it will send a political message at a time of land unrest that governments are not bending over backwards to accommodate SEZs.

“The empowered committee of state finance ministers on VAT (value-added tax) unanimously feels that in non-processing zones of SEZs, no one should impose on states anything relating to tax exemptions,” panel chairman and Bengal finance minister Asim Dasgupta said. “In other words, we are against any state tax exemption in any non-processing part of SEZs,” he added.

State levies like that on building material and fuel are now expected to be applicable to non-processing activities in SEZs.

Asked about the fate of blanket exemptions already given by some states to SEZs, Dasgupta said: “What has happened has happened. We are now of the view that no one should force states to give tax exemptions to non-processing zones.”

On whether the view of states is shared by the Centre, Dasgupta said: “Yes, it is, but if it is not, we are communicating our views to the Centre because it is the unanimous views of all states.”

The limit on tax exemptions is the latest in a series of restrictions on SEZs. The government has already set a ceiling on the size of SEZs and stopped forcible acquisition of land.

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