In what could be a major boost to India's special economic zones (SEZs), the government is set to reduce the minimum alternate tax (MAT) on special economic zones (SEZ) from 18.5 per cent to 7.5 per cent. The move is expected to be announced in the Budget for next financial year.
Since coming to power at the Centre in May, the Bharatiya Janata Party (BJP) -led government has been vocal about boosting the country's SEZs, which have seen slow implementation after imposition of MAT and dividend distribution tax (DDT) on the tax-free enclaves.
A decision on MAT and DDT on SEZs was expected to be taken up during this year's Budget, tabled in Parliament in June. But no major measure was taken at that time because of "tight fiscal room". "It (MAT) will now be fixed at 7.5 per cent," a senior commerce department official told Business Standard.
Reducing the rate of MAT, an advance tax, will not require amending Section 10 AA of the income-tax Act. Even after introduction of MAT, exemption from income-tax continues for SEZ developers and units. So, the official did not rule out a reduction in the MAT rate even before the next Union Budget.
Commerce Secretary Rajeev Kher had said at a recent Ficci meet that the government would address the MAT issue in the coming Budget, to be unveiled by Finance Minister Arun Jaitley towards the end of February.
The proposal had originally been mooted by the Export Promotion Council for EoUs (export-oriented units) and SEZs (EPCES). The council had said developers were made to pay MAT at 18.5 per cent, plus cess; this came to almost 20 per cent.
"The slow implementation of SEZs can be attributed to introduction of MAT, at 18.5 per cent, plus cess. This MAT is required to be adjusted within 10 years, failing which the surplus credit lapses. We have been making representations to the finance ministry, department of revenue and commerce ministry, citing that MAT, if paid, cannot be adjusted within 10 years," said EPCES Chairman P C Nambiar.
The proposal - to impose MAT at 18.5 per cent on book profits of both SEZ developers and units in these enclaves - was announced in Budget 2011-12 by the then finance minister, Pranab Mukherjee, under the previous regime. Besides, DDT at almost 20 per cent was also imposed for dividend distributed to shareholders.
MAT came into effect from April 2012, amid severe protest from SEZ developers and units. It was introduced through a proposal in the Finance Act, even as the SEZ Act specifically mentioned a stipulated tax holiday to be given to these zones.
The government is also going to soon announce dual usage of the SEZ land by allowing utilisation of the non-processing zones - where export activity does not take place - for the benefit of developers.
Meanwhile, the government recently cancelled 67 formally approved SEZs. As a result, the total number of SEZs that had obtained formal approval came down to 491 - 352 of those are the notified ones. A total of 196 SEZs are operational at present.
GOVT'S EXPORT PUSH
- Minimum alternate tax on SEZs took effect from Apr 2012, amid protest from developers & units
- This was introduced through a proposal in the Finance Act, even as the SEZ Act specifically mentioned a stipulated tax holiday to be given to SEZs
- Move to lower MAT rate might be announced in the Budget for next financial year
- Since coming to power at the Centre in May, the BJP-led govt has been vocal about boosting the country's SEZs, which have seen slow implementation after introduction of MAT and dividend distribution tax
- In 2013-14, exports from SEZs declined for the first time since inception - by 6.61% to $82.35 billion from $88.18 billion the previous year
- Tax concessions to SEZs are projected to have led to Rs 6,198 crore of revenue forgone in FY14, against Rs 4,491 crore the previous year