18.5% MAT slammed on SEZ

Mar 01, 2011 |

Tags:

Union budget

Feb. 28: In a move that will hit SEZ developers and units in special economic zones (SEZs) in the country, the central government plans to impose a Minimum Alternate Tax (MAT) of 18.5 per cent on them. According to industry experts, this will constrict investments in setting up SEZs in India.

“Introduction of MAT is the first step in the direction of imposition of taxes on SEZ developers and will severely impact investments. Investments in SEZs have already come down this year in the wake of uncertainty of introduction of the Direct Tax Code (DTC). MAT being impo-sed a year in advance will be a major blow to overall sentiments,” said Mr R. K. Sonthalia, chairman at Export Promotion Council for SEZs and EOUs.

The council plans to submit a memorandum regarding the same to the finance minister on Tuesday. According to the Export Promotion Council for SEZs, the investments in the first quarter stood at Rs 19,000 crore. It declined by 52 per cent in the second quarter to Rs 9,000 crore and improved only marginally in the third quarter at Rs 10,000 crore.

“The imposition of MAT on SEZ developers and units is retrograde as it seeks to impose tax on income received from investments made with a commitment of tax exemption. This is advancing the negative impact of the DTC and should have been avoided,” said Mr Dinesh Kanabar, Deputy CEO and chairman Tax at KPMG India.

Experts see the move to tax units in SEZs and SEZ developers as a rollback of the entire commitment in the SEZ Act. As of now, the SEZ developers and units present in SEZs are completely exempted from all kinds of taxes.

“The move lowers incentive for building SEZs as main purpose of the SEZs was to provide a place where taxes would not add to transaction costs. While an arbitrage of around 10 per cent of the tax rate is still available to units operating in SEZs it will not be as attractive as before. However SEZs still remain in tax terms, the cheapest place to do business,” said Mr Sanjay Ubale, managing director at Tata Realty & Infrastructure.

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