Fin Min rejects tax breaks for SEZs

The Commerce Ministry had recommended restoration of original exemption (pre 2011-12 budget) from MAT and DDT to SEZs

In a major jolt for Special Economic Zones (SEZ), the Union ministry of finance has turned down a proposal to remove Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) on these.

Commerce and Industry Nirmala Sitharaman revealed this in a written reply to the Lok Sabha. “(My) ministry had recommended the restoration of original exemption from MAT and DDT to SEZ developers and units. However, the ministry of finance has not agreed,” her reply went.

She said there'd been several demands from various quarters for discontinuing the MAT imposed on SEZ developers and units and the DDT, levied only on the developers.

The proposal to impose MAT and DDT on SEZs was first announced in the 2011-2012 budget under the former United Progressive Alliance government. Subsequently, these were introduced, although the SEZ Act specifically mentions a stipulated tax holiday to these zones. Despite protests from SEZs and unit developers, the taxes came into effect in April 2012.

Presently, 196 SEZs are functional in the country. A majority are in Tamil Nadu, Maharashtra, Karnataka and Telangana. Recently, the government cancelled 35 SEZs due to lack of satisfactory output. And, 18 such projects which had in-principle approval but hasn't shown progress.

"Review of functioning of SEZs is an ongoing process and on the basis of inputs received from stakeholders on the policy and operational framework of the scheme, government takes necessary measures so as to facilitate speedy and effective implementation," Sitharaman added.

After coming to power this year, the government had set up a high-level committee to start stalled SEZ projects.

On the new foreign trade policy for 2014-2019, Sitharaman said it was "under consultation and finalisation".