Special Economic Zones (SEZs) are likely to lose their sheen, with the Direct Taxes Code (DTC) Bill proposing to introduce minimum alternate tax at 20 per cent on the book profit of developers as well as units from April 1, 2012.
"The 20 per cent MAT on SEZ developers and units will make the SEZ Act dead," officials in the Commerce Ministry said.
MAT is a tax imposed on profit-making companies that do not fall under the tax net because of various exemptions.
The legislation, which was tabled in Parliament yesterday, proposes to increase MAT from 18 per cent to 20 per cent of the book profit of a company.
"MAT will be applicable to SEZ developers and units," the officials said.
The government aims to introduce DTC from April 1, 2012. The officials said as such, MAT will also be imposed on developers and units in SEZs from that date.
Units in SEZs get 100 per cent income tax exemption on export income for the first five years and 50 per cent for the next five years. They are also exempted from MAT.
When enacted, the DTC will replace archaic Income Tax Act.
The officials also said that due to the provisions in the DTC Bill, several SEZ developers have already asked the Board of Approval (BoA) for permission to surrender their projects.
The BoA, headed by Commerce Secretary Rahul Khullar, is the nodal agency for SEZ-related matters. The BoA is scheduled to meet on September 16.
The officials also said that after the implementation of the DTC, the state governments would also revoke the exemptions they have given to the tax-free enclaves.
"If the DTC Bill comes into effect, the states will also take back the incentives from SEZs," the officials added.
Along with the central government, state governments also exempt SEZs from local taxes like octroi and sales tax.
Exports from 114 operational SEZs went up from Rs 22,000 crore in 2005-06 to Rs 2,20,000 crore in 2009-10.
The Bill has proposed that SEZs notified on or before March 31, 2012, will get income tax benefits. Furthermore, units in SEZs that commence commercial operations by March, 2014, will also be allowed such benefits.