Govt divided over tax Code proposal on SEZs

The revised discussion paper on the Direct Taxes Code (DTC) has generated a fresh war of words over the tax treatment for special economic zones and units operating in them.

Commerce department officials today said the finance ministry’s proposal to stop tax benefits for all units in SEZs set up from April 1 will sound the death knell for the duty-free enclaves. “Ever since the first draft was issued in August, we have been getting calls as everyone is worried. All that DTC has done is create uncertainty in the minds of developers, unit holders, investors and financial institutions. Who would want to invest when there is uncertainty in the policy regime?” said a ministry official.

Revenue Secretary Sunil Mitra, however, ruled out the possibility of a relook at the proposal. “At the moment, no. We are very alive to the need for promoting and encouraging exports and trade. But we are equally alive to the need for raising revenue.

That is what the government raises revenue and has a budget for. So, prima facie, we have no objections to the Ministry of Commerce encouraging business of exports through promoting SEZs. If SEZs are to be given concessions, we do not think these have to be tax concession henceforth,” he told reporters.

A commerce ministry official said that the revenue department’s proposal would only result in establishment of information technology units in SEZs. “It is inconceivable to set up a manufacturing unit in six-seven months. So, all you will get is IT units, which we thought will be 25 per cent of all SEZ units.”