Pranab Mukherjee’s decision to retain the minimum alternative tax (MAT) on units in special economic zones (SEZs) might have become a bane for the information technology (IT) industry, but the move would aid the Bengal government’s bid to keep Infosys and Wipro in the state.
A unit in an SEZ enjoys income tax holiday for 15 years. However, MAT, which is a special tax, amounts to about 20 per cent of the overall income for SEZ units. “As opposed to this, a unit which does not enjoy SEZ status has to pay 30 per cent tax on profits,” said Pranav Satya, tax analyst and partner at Ernst&Young.
In simple terms, this would mean that had the MAT been withdrawn, the West Bengal government, which is trying to match SEZ benefits without assigning the SEZ status, would have to match a 30 per cent exemption.
According to a senior Wipro official in know of the negotiations, who refused to be named, MAT does mean that SEZ benefits stand visibly reduced. “We are in the middle of negotiations and it might be too early to comment. But MAT affects the benefits derived from SEZ status,” the Wipro official said.
At present, Infosys is under the ‘silent period’ before their quarterly results' declaration and hence could not comment on the story. An official, however, said despite the lengthened MAT stay for SEZs, it would still be a problem for the government to match the benefits offered by SEZ status.
According to tax experts, one sure fire way to match SEZ status benefits is to give land at subsidised costs. “Land forms a big crux of the cost for any project. If the state government is willing to subsidise this cost, part of the benefit from SEZ is matched,” Satya of E&Y said.
The asking price in the market for the land is pegged at Rs 12 crore an acre at present. This would mean that the cost of the land is about Rs 600 crore, while Infosys and Wipro were to pay Rs 75 crore only.
However, in the first phase, the projects are expected to require investment of about Rs 600 crores. “We are making all efforts to match any benefit they want. But we are against SEZs in principle and we have been voted by the people on this plank. We cannot go against this idea,” said Partha Chatterjee, state IT minister.
Between themselves, the two projects were expected to create employment for around 30,000 people.
“We have anyways given them prime land at subsidised rates. Also, they (the companies) need to take a decision based on the fact that there is a sundown clause on the SEZ tax holiday. We are offering them longer lasting benefits,” said an official in the state IT department.