MAT imposition on SEZs surprising: Sharma

Expressing "surprise" at the Budget proposal to impose Minimum Alternate Tax on SEZ developers, Commerce and Industry Minister Anand Sharma today said he has voiced his concerns to Finance Minister Pranab Mukherjee as the move would impact these projects.

Mukherjee has proposed to levy Minimum Alternate Tax (MAT) of 18.5% on the book profits of Special Economic Zone developers and units. The changes in the tax rate would be effective April 2012.

Both developers, as well as units in the tax-free enclaves, were earlier exempted from MAT under Section 115 JB of the Income Tax Act.

"I have discussed this (with Mukherjee) and I have written to the Finance Minister... It was a surprise and for the developers, surely it is a matter of concern," Sharma told reporters here.

The minister was surprised because MAT was scheduled to be imposed on SEZs when the Direct Taxes Code (DTC) is rolled next year.

He, however, said that the Finance Minister has assured him that the benefits and concessions that were available to the developers until 2012 and units until 2014 will be there.

"Our understanding has been that we will try to align it (imposition of MAT) with the coming in of the DTC, "he added.

MAT was introduced in 1987 to bring companies that paid no or very little tax, after taking advantage of the exemptions provided by the Income Tax Act, into the tax net.

The government has also proposed to impose dividend distribution tax on SEZ developers, which would come into effect from June this year.

Exports from SEZs contribute about one-third of the country's total exports. Shipments from these zones during April-December, 2011, grew by 47% to Rs 2,23,132 crore vis-a-vis the same period last year.

Under the SEZ Act, units get 100% tax exemption on profits earned for the first five years, while developers get exemption for ten years. Additionally, units get a 50% exemption for the next five years and another 50% exemption on re-invested profits in the following five years.

So far, 582 SEZs have been formally approved by the BoA, of which 130 are in operation. SEZs have emerged as major sources for attracting investment and increasing exports in the country.

Finance Minister Pranab Mukherjee in his Budget has marginally raised the MAT from 18% to 18.5% on companies' book profits.