Finmin, Plan panel not in favour of giving direct tax sops to SEZs

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While the meeting of the empowered group of ministers on special economic zones scheduled for Thursday has been postponed, a significant demand of the finance ministry on the eGoM’s agenda to drop the direct tax exemptions to SEZs has got the backing of the Planning Commission.

Commission member Anwarul Hoda said there was a need to consider withdrawing direct tax exemptions to such tax-free enclaves as it was putting units located outside SEZs at a disadvantage.

The finance ministry is against giving tax breaks to SEZs as it claims it will drain revenue to the tune of Rs 102,621 crore from 2006-07 to 2009-10. While the commerce ministry (the nodal ministry for SEZs) points to these losses being notional, the finance ministry has proposed to the EGoM to impose a 12.5% minimum alternate tax (MAT) on SEZs.

Hoda however dismissed the criticism of SEZs being a real estate business. “It is not right to fear all kinds of real estate activity,” he said, pointing out that this was helping the country achieve an urbanization level of 50% by 2050. The total area proposed for SEZs was only 0.1% of the total agricultural land and the real estate activity due to SEZs was also helping develop good townships and housing facilities for a lot of migrants, Hoda added.

Hoda said the last Census showed the level of urbanisation in the country at 27%, which has now gone up to over 30% and should reach 50% by 2050. In states like Tamil Nadu, the level of urbanization is already 40%.

Speaking at a conclave on SEZs organized by Assocham, the government’s think-tank member said this was due to large-scale migration from rural areas towards urban locations. If land owners in countryside are becoming less dependent on agriculture land because of its low yield, there was no need to oppose SEZs that are coming up on such land as such zones would help create jobs for several people there and also aid in a planned urbanization of such areas, Hoda said.