TAX NEWS - 2010

No Tax Sops For Special Economic Zones (SEZs) In DTC: Finance Ministry

The Finance Ministry hinted that there might not be any tax incentives to special economic zones (SEZs) in the revised special economic zones although Commerce Minister Anand Sharma assured that the interests of investors would be protected, media reports say.

The ministry said that profit-linked incentives were damaging adding the special economic zones had failed to encourage the manufacturing sector as expected.

According to a finance ministry official, the commerce ministry should provide its appraisal of the current state of special economic zones before claiming continuation of income tax incentives.

The official also felt that the special economic zones were sector-specific and did not help the country become a major manufacturing hub. He added that the special economic zones meant for export-processing units, turned out to be export zones only for Income Tax and processed diamonds.

Above 60% of the 578 approved special economic zones are in Income Tax related sector. There is a lack of manufacturing sectors that are supposed to become special economic zones.

The official cited that the special economic zones draft said that profit-linked deductions were distortionary as they created incentive to inflate profit as well as transfer profits from a taxable entity to a non-taxable one. The Direct Taxes Code draft proposes to end the 10-year income-tax benefits to new special economic zones.

The industry is against the proposal and is banking on the support of the Commerce Ministry. The Finance Ministry feels that special economic zones failed to achieve their goals for which incentives were offered. There exists also a difference of opinion between the two ministries on the performance of special economic zones.