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Upcoming Union Budget – A Surprise or Satisfaction for SEZ Nirmal Nagda
The last year's Union Budget caused irreparable damage to the SEZ policy by levy of Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) on the SEZ developers and MAT on SEZ units, which have led to the steep deceleration in the investment in SEZs. It is also observed that various developers are pulling out because without tax incentives being offered to SEZ units it is practically very difficult to attract investments. While the Commerce Ministry is taking various steps to attract more and more investments (recent discussion paper issued by Commerce Ministry to completely overhaul SEZ policy and operating framework), all eyes are set on the Finance Ministry with an expectation to reintroduce MAT exemption for SEZ units and developers and DDT exemption for SEZ developers. Though industry expects a complete exemption, from natural justice and honouring Government's promises perspective the Finance Ministry should atleast consider re-introducing the MAT and DDT exemption for operational SEZ and SEZ units. Such a step would not only help the developers and units, but also the investors who had made investments basis the exemptions which were available at the time of investment. On the other hand, Industry is expecting clarity on various issues that un-necessarily lead to litigation and diversion of efforts into unproductive areas. Understandably, if all these changes are not feasible to be accommodated in the upcoming Union Budget, industry expects them to be ironed out in the proposed DTC. The sector is hopeful that upcoming Union Budget would unfold certain reintroduction of tax incentives for the SEZ developers and units which could provide a timely boost to the policy, considering the Finance Ministry's arguments for removal of incentives, apprehensions exist and one wonders whether expectations would be met. |
While policy flip flop is a known phenomenon in Indian context (one may recall the recent experience of permitting FDI in Multi-brand retail space), SEZ i.e. Government's dream policy for boasting exports and employment generation is certainly impacted big time due to frequent changes (specifically the negative changes) in the tax laws. It is often said that timely actions can decide between success and failure. Having regard to the fact that tax incentives play a crucial role in attracting investments, the upcoming Union Budget provides an option to the Government to stimulate and infuse energy into the SEZ concept, since investment into SEZs are driven by the various incentives provided to the SEZ developers and units. The authors have tried to touch upon few key direct tax expectations from the upcoming Union Budget.