Even as Larsen and Toubro withdrew its proposal for an IT/ITeS Special Economic Zone (SEZ) citing uncertainty in tax treatment towards SEZs in the Direct Taxes Code (DTC), the Commerce Ministry has said the Finance Ministry is yet to consult it on the continuity of fiscal sops in the DTC to these tax-free zones.
“We have been sending reminders to them (Finance Ministry) at least once every week. But so far they have not contacted us. We don’t want the existing provisions (on income tax exemption to SEZs in the SEZ Act) to be changed as there is no basis for any such change,” a Commerce Ministry official told Business Line.
SEZs have attracted investments of Rs 1,48,489 crore so far. Officials said most of these investments have come in due to the fiscal concessions. The draft DTC does not have any clarity regarding income tax exemption to SEZ units, they said, warning that if the exemption is not continued for SEZ units, it would virtually amount to “killing the SEZ scheme.”
The Board of Approval (BoA) for SEZs on Tuesday approved the withdrawal of formal approval to L&T’s IT/ITeS SEZ in Mumbai. L&T had said due to the slowdown and “uncertainty in tax provisions under DTC and Goods and Service Tax regulations, it has been decided to make these investments in the DTA (or Domestic Tariff Area).” DTA, the area outside SEZs, is subject to taxes and duties.
Taking into account the difficulties faced by developers due to the economic slowdown, the BoA approved requests to withdraw four SEZ proposals, including L&T’s as well as de-notification of SEZs by Bata India and NSL SEZ (Chennai). It also granted extension of formal approval to over 30 proposals including that of Reliance Haryana SEZ.
Dr L.B. Singhal, Director-General, Export Promotion Council for EOUs and SEZs (EPCES), said, “If there is no income tax exemption, no entrepreneur will set up a unit in SEZs. Naturally, no developer would want to develop SEZs in such a situation.” He said many are now holding back their investments in SEZs due to the uncertainty created by the DTC.
Under the SEZ Act, units get total income tax (I-T) exemption on export profits for the first five years, and 50 per cent exemption for the next five years.
The developers get 100 per cent I-T exemption for a block of consecutive 10 years of the first 15 years.