New Delhi, May 25: The new BJP-led government will explore the possibility of abolishing the minimum alternate tax (MAT) on special economic zones and extending the benefits of export schemes to the zones. The incentives are expected to boost exports and prop up the manufacturing sector.
“The investments in SEZs have been impacted by uncertain taxation. Changes in policy have impacted the performance of units in these zones. Exports and manufacturing activities have come down from SEZs. Labour laws, too, are hitting the manufacturing sector’s growth,” a senior commerce ministry official said.
“Efforts would be to restore the confidence of investors and continuity in policy as these zones contribute about 30 per cent to the country’s exports,” officials said.
Under the SEZ act, units get a 100 per cent tax exemption on profits earned for the first five years, a 50 per cent exemption for the next five years and another 50 per cent on re-invested profits in the following five years. However, the government had imposed an 18.5 per cent MAT on the book profit of SEZs in the budget for 2010-11.
This resulted in a large number of developers withdrawing their proposals and a very few coming up with new ones.
The major reason for the SEZs losing their appeal was the frequent policy changes owing to the turf war between the finance and commerce ministries.
The finance ministry wanted to explore every opportunity to generate more revenue, while the commerce ministry wanted to offer tax sops to encourage the creation of more export-oriented manufacturing centres.
During 2012-13, SEZs attracted investments worth Rs 2.36 lakh crore and provided direct employment to over 11 lakh people. Exports from SEZs grew around 31 per cent year-on-year to Rs 4.76 lakh crore.
The another big change in the rule being considered by the ministry includes the extension of the benefits of export schemes to units within SEZs. In the foreign trade policy, the 2 per cent interest subvention scheme had been widened to include items such as toys, sports goods, processed agricultural products and readymade garments, apart from SMEs and the handloom sectors.
The focus product and focus market schemes, wherein the government gives cash incentives equivalent to 2 per cent of the value of exports, were also expanded to incorporate 10 markets and over 100 products.
The government, however, had eased land requirement norms to rekindle investor interest in SEZs in view of the problems faced by developers in land acquisition.
For multi-product SEZs, the minimum land requirement was brought down from 1,000 hectares to 500 hectares. For sector-specific SEZs, it has been reduced by half to 50 hectares. Also, there is no minimum land requirement for setting up IT/ITeS SEZs apart from easing the minimum built-up area criterion.
The minimum built-up area requirements to be met by SEZ developers will be 100,000 square meters for the seven major cities — Mumbai, Delhi (NCR), Chennai, Hyderabad, Bangalore, Pune and Calcutta; 50,000 square meters for Category B cities and only 25,000 square meters for the remaining cities.
The country’s exports in the past three years have hovered at $300 billion. The policy is aimed at boosting overseas shipments and enhancing its share in world trade. Exports in 2013-14 increased to $312.35 billion but fell short of the target of $325 billion. Shipments stood at $300.4 billion in 2012-13 and $307 billion in 2011-12.