Budget likely to address MAT on SEZs

Commerce secretary says decision has already been taken on utilising the non-processing areas inside SEZs where export activities do not take place

The next Budget might address the long-standing problem of imposition of minimum alternate tax (MAT) and dividend distribution tax (DDT) on special economic zones (SEZ), according to commerce secretary Rajeev Kher.

"MAT and DDT, you will definitely see something on February 28... There will be a decision," said Kher during the annual general meeting of FICCI here on Friday.

Kher said a decision has already been taken on utilising the non-processing areas inside SEZs where export activities do not take place. A notification will soon be issued on this matter, he said.

"We have reached a decision... A notification will soon be issued. This is a clear indicator that we are talking in terms of optimising infrastructure, which is created in SEZs," he added.

The proposal to impose 18.5 per cent MAT on the book profits of both SEZ developers and units located inside these enclaves was announced by the then finance minister Pranab Mukherjee while presenting the Budget for 2011-2012. It came into effect from April 2012 amidst severe protest from SEZ developers and units.

The proposal to impose MAT and DDT on SEZs was introduced through a proposal in the Finance Act even though the SEZ Act specifically mentions the stipulated tax holiday given to these zones.

Prior to this, SEZ developers and units were exempted from MAT under Section 115JB(6) of the Income Tax Act, 1961. This has led to stalling of large-scale projects. On the other hand, developers, who have invested huge investments for developing SEZ projects based on the tax incentives offered by the government under the SEZ Act, were left high and dry.

As on December 17, formal approvals have been given to 491 SEZs. Out of this, 352 are notified and 196 are operational.