The Commerce Ministry may have allowed SEZ units to migrate from one SEZ to another, but such units may face tax difficulties in the absence of specific guidance from tax authorities to cover such situations, say tax experts.

There is no specific provision in the income tax law to deal with the migration situation and hence the tax authorities at the ground level could take any view — either allow the migrated unit to enjoy tax holiday for the unexpired period or deny the tax holiday for the remaining period, sources in the Finance Ministry said.

Last week, the Commerce Ministry announced that the Board of Approvals (BoA) had no objection for shifting of units from one Special Economic Zone (SEZ) to another SEZ. The BoA gave its in-principle nod for such shifting. However, all proposals for shifting of units from one SEZ to another must be placed before the Board for its consideration, the Commerce Ministry had said.

The BoA nod came in the wake of requests received by the Government for shifting of SEZ units. These requests were considered but could not be acted upon as there are no specific provisions under the SEZ rules for these shifts and also there are no rules prohibiting the shifts. With consolidation of SEZs, it was pointed out that shifting of units may become more frequent and therefore the entire issue was placed before the BoA for its directions.

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Income Tax

“While the income tax provisions do not contemplate such a situation of migration and therefore there is no specific guidance provided on continuation of tax holiday; yet there is no explicit bar or restriction denying tax holiday to a SEZ unit on account of such migration.

“In the interest of business, it would be good if the income tax authorities could issue clarifications in order to avoid unnecessary hardship on tax payers,” Ms Neeru Ahuja, Partner, Deloitte, Haskins & Sells, told Business Line here.

Mr Prashant Khatore, Tax Partner, Ernst & Young, said that there was no specific provision dealing with the migration situation and therefore the Central Board of Direct Taxes (CBDT) should also clarify this position to avoid any issues in future.

“While the shifted units will not be able to restart the 15-year tax holiday, there are arguments to continue the tax holiday for the balance period,” Mr Khatore said.

The tax treatment on SEZ units has been a contentious issue among policy makers ever since the SEZ scheme was framed and put into play from 2006.

The revised discussion paper on direct taxes code has in a way cast a shadow over the attractiveness of the SEZ scheme — reason being that new units established after April 1, 2011 would get no tax concession at all.

However, the Government intends to protect the profit–linked deduction for all existing units (established before the proposed direct taxes code comes into force).

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