Govt to revamp Pranab Mukherjee’s tax policies on SEZs

The next union budget might address the long-standing problem of imposition of minimum alternate tax (MAT) and dividend distribution tax (DDT) on special economic zones, commerce secretary Rajeev Kher said on Friday.

"MAT and DDT, you will definitely see something on February 28 ... there will be a decision," said Kher during the annual general meeting of the Federation of Indian Chambers of Commerce & Industry in Delhi.

Kher said a decision has already been taken on utilising the non-processing areas inside SEZs where export activities do not take place. A notification will soon be issued in this regard.

"This is a clear indicator that we are talking in terms of optimising infrastructure, which is created in SEZs," he added.

The proposal to impose 18.5 per cent MAT on the book profits of both SEZ developers and units located inside these special enclaves was announced by the then finance minister Pranab Mukherjee while presenting the Budget for 2011-2012. It came in effect from April 2012 amidst severe protest from SEZ developers and units in them.

The proposal to impose MAT and DDT on SEZs was introduced through a proposal in the finance act even though the SEZ Act specifically mentions the stipulated tax holiday given to these zones.

Prior to this, SEZ developers and units were exempted from MAT under Section 115JB(6) of the Income Tax Act, 1961. This has led to stalling of large-scale projects.

On the other hand, developers, who have invested huge investments for developing SEZ projects based on the tax incentives offered by the government under the SEZ Act, were left high and dry.

As of 17 December, formal approvals have been given to 491 SEZs. Out of this, 352 are notified and only 196 are operational.