The commerce department will push for lowering of the minimum alternate tax (MAT) proposed in the direct taxes code (DTC) Bill on units in special economic zones (SEZs) as it believes that it would not be viable for units to pay such high taxes. The department will raise the issue in the presentation it will make before the parliamentary committee on DTC and will also discuss it with the finance ministry.

“On calculations carried out so far we feel that a 20% MAT on units is way too high and will not make commercial sense,” a commerce department official said. The department is carrying out a simulation exercise to find out the effect of the DTC proposals on SEZs and will make its case once the exercise is complete. “The parliamentary committee has not yet called us for our views. We will be prepared with our numbers when the call comes,” the official said, adding that thedepartment would hold simultaneous discussions with the finance ministry on the issue.

The DTC Bill, which has the approval of the Union Cabinet, seeks to replace profit-linked exemptions with investment-linked exemptions for both developers and units, and impose a MAT of 20% on units. A parliamentary committee has now been set up to scrutinise the DTC Bill and listen to views of all stakeholders, including the industry and the government.

The industry, predictably, is opposing the bill tooth and nail. According to Export Promotion Council for SEZs (EPCES) chairman R K Sonthalia, the DTC should not alter the SEZ Act just four and a half years after it got implemented. “The SEZ Act was intended to provide long-term stability and continuity to the SEZ scheme,” Mr Sonthalia said.

If the returns expected by units after paying MAT go down too steeply, investing in SEZs may not remain an attractive option, the official said. Investors may as well open up units in the domestic tariff area where they could benefit from export incentive schemes such as focus-product and focus-market schemes, which are not available for SEZ units.

Under the SEZ Act, units get 100% tax exemption on profits earned for the first five years, a 50% exemption for the next five years and another 50% exemption on re-invested profits in the following five years. SEZ developers get 100% tax exemption on profits for 10 years which can be availed within the first 15 years.

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