Parliament’s Standing Committee on Finance has criticised the government for not doing a review of the tax exemptions given to Special Economic Zones (SEZs) and an evalutation of the losses due to these. In April, the committee had asked the government for a study group on the issue.The finance ministry, in its response, said it had initiated steps to constitute a study group but wouldn’t say by when.

The panel has expressed concern that a huge amount of revenue is being lost due to these duty exemptions.

“The committee desire that the study group be constituted at the earliest and it should assess the benefits accruing from SEZs, particularly with reference to the taxes forgone. They should also distinguish between revenue forgone on account of exemptions/concessions and losses due to pilferage of revenue,” said its report.

At present, units in SEZs enjoy 100 per cent tax exemption on their income for the first five years, 50 per cent in the next five years and another 50 per cent on re-invested profits in the following five years.

SEZ developers get 100 per cent tax exemption on profits for 10 years, which can be used in the first 15 years. Due to these tax sops, the finance ministry had to forgo revenue of Rs 5,266 crore (Rs 52.66 billion) in 2009-10.

In the Direct Taxes Code, currently being examined by the Standing Committee, the finance ministry has proposed to do away with all exemptions to investments in SEZs beyond April 2011.

However, a tax holiday will be extended to units setting up before March 2014. The government has so far approved 574 SEZs, of which 350 have been notified and 111 are operational.

The committee had also asked the government to maintain zone-wise data on revenue forgone and revenue generated, as well as violation of rules in respect of SEZ units.

On the finance ministry’s response that it had taken up the matter with the commerce ministry, the committee said it showed the department of revenue had not taken the matter with “due seriousness”.

“Taking into account heavy revenue losses that have admittedly occurred to the government on account of tax exemptions to SEZs, the committee convey their displeasure over the lackadaisical approach of the ministry in dealing with the matter,” it emphasised.

Although the commerce ministry said exports from SEZs grew 122 per cent to Rs 2,20,000 crore (Rs 2,200 billion) in 2009-10, the finance ministry is not convinced that creation of SEZs has given a boost to India’s exports, which fell 0.7 per cent to Rs 8,35,264 crore (Rs 8,352.64 billion) during the period, due to the global economic crisis.

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September 2021