The likelihood of new units in Special Economic Zones losing Income-Tax exemptions in the Direct Taxes Code regime has stepped up representations to the Centre. According to the DTC revised draft, units coming up in SEZs after the implementation of the Code from April 1, 2011, would not get I-T holiday.
Many SEZ developers, including infrastructure major GMR, have written to the Prime Minister, Dr Manmohan Singh, the Finance Minister, Mr Pranab Mukherjee, the Commerce and Industry Minister, Mr Anand Sharma, and State Chief Ministers about their concerns on the adverse impact of DTC on their SEZ projects.
Mr Ajay Nijhawan, Convenor, Export Promotion Council for EOUs and SEZs Panel for SEZ Developers, told Business Line that, “At stake is around Rs 30,000-crore worth exposure that banks and financial institutions have to SEZ projects under different stages of development. Many of these SEZs are awaiting new units to come up. If the benefits provided by the SEZ Act are taken away, these loans could turn non-performing assets.”
Highlighting similar representations received by him, the Andhra Pradesh Chief Minister, Mr K Rosaiah, too has written to the Union Finance Minister. Mr Rosaiah stated that the Andhra Pradesh Government had “made conscious attempt to attract international investors to make sizeable Foreign Direct Investments under the SEZ scheme.”
In order to restore investor confidence in Government policies, he wanted Mr Mukherjee to personally intervene and ask the Finance Ministry to issue a clarification that all the benefits originally provided to developers and units under the SEZ Act be continued even after the DTC comes into effect.
`Migration of economic activity’
The SEZ Developers’ Association of India has also written to Mr Mukherjee that if tax benefits are not given to new units, there would be migration of economic activity to other countries, in turn resulting in loss to India.
The Association said if tax benefits are withdrawn, no new unit will come up in SEZs, adding that developers will lose huge investments made in land and infrastructure if companies do not set up units.
GMR’s letter to the Tamil Nadu Chief Minister, Mr M. Karunanidhi, states that the DTC, in its present form, would not only affect the investment climate of the State and the country but also its Krishnagiri SEZ project.
GMR has asked Mr Karunanidhi to take up the matter with the Centre. Calica Constructions, which is developing an IT/ITes SEZ in Gujarat with an investment of Rs 650 crore, has made similar demands in an appeal to the Prime Minister, Finance and Commerce Ministers.
The DTC draft states that it would protect profit-linked deductions for developers and existing units in SEZs for the `unexpired’ period. But the Finance Ministry is against tax breaks for new units. It favours investment-linked deductions.
The SEZ Act provides developers 100 per cent I-T exemption for a block of consecutive 10 years of the first 15 years. It also grants units total I-T exemption on export profits for the first five years, and 50 per cent exemption for the next five years.