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Modi interest in SEZ revival

New Delhi, June 13: The government may scrap the minimum alternate tax (MAT) and restore tax incentives for special economic zones (SEZs) to make them more attractive for investors, giving a fillip to manufacturing and exports.

Prime Minister Narendra Modi will hold a meeting of the officials of commerce and finance ministries tomorrow to sort out taxation and other problems affecting the growth of the tax-free zones.

“Changes in policy have impacted the performance of units in these zones. Export and manufacturing activities have come down from SEZs,” a senior commerce ministry official said.

SEZs can play an important role in boosting both exports and manufacturing, besides generating jobs. Of the 566 formally approved SEZs, only 185 are in operation.

In the budget for 2011-12, the government had imposed a MAT of 18.5 per cent on SEZ developers and units. The current MAT rate is 20.96 per cent on the book profits.

The imposition of the tax took investors by surprise, raising questions about the government’s commitment to a stable policy regime. A large number of developers withdrew their proposals and a very few came up with new ones.

A 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 revenues, while the commerce ministry wanted to offer tax sops to encourage the creation of more export-oriented manufacturing centres.

Such inter-ministerial differences are likely to come up for scrutiny at the meeting.

Extensions to export benefit schemes such as the focus product scheme to SEZs are also likely to be discussed.

“If immediate action is taken by implementing corrective measures, it would restore investor confidence and bring back SEZs to the forefront of economic and industrial development,” Assocham has said in a research paper

SEZs contribute about one-third to the country’s exports. They provide employment to about 15 lakh.

Restoring confidence of domestic manufacturing sector by providing a stable policy environment would promote competitiveness as SEZs can be the vehicle to boost manufacturing exports from India and catalyse revival of Indian economy,” Assocham in a research paper ‘Suggestions to Revive Special Economic Zones’ said.

“If immediate action is taken by implementing corrective measures, it would restore investor confidence and bring back SEZs to the forefront of economic and industrial development. Restoring confidence of domestic manufacturing sector by providing a stable policy environment would promote competitiveness as SEZs can be the vehicle to boost manufacturing exports from India and catalyse revival of Indian economy,” Assocham in a research paper ‘Suggestions to Revive Special Economic Zones’ said.

The commerce ministry has asked its finance counterpart to roll back MAT imposed on SEZs, saying that the levy has “suppressed” the potential of these zones as a tool to promote exports and generate employment.


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