Fearing the kind of irregularities ? la many of India?s special economic zones (SEZs), the North Block has objected to tax incentives for national investment and manufacturing zones (NIMZs), part of the proposed National Manufacturing Policy. A finance ministry source told FE that at a recent inter-ministerial meeting with the department of industrial policy and promotion, the departments of expenditure and revenue raised concerns that these concessions could be misused and lead to irregularities.
SEZ developers and units enjoy specified tax benefits ? including income tax holidays and customs duty waivers ? and these zones have emerged as major sources for increasing exports from the country.
Following frequent reports of companies and investors using the SEZ facility for tax evasion, Budget 2007-08 introduced anti-abuse provisions to check malpractices. As these measures have since proven to be inadequate, the finance minister Pranab Mukherjee brought SEZ developers and units under Minimum Alternate Tax (MAT) in Budget 2011-12, a move which, the commerce ministry said, amounted to changing rules half-way through the game.
According to the source, while the revenue department has expressed reservations over the proposed tax sops for NIMZs, the expenditure department has opposed the proposal as it entails dedicated funds for technological upgradation, skill enhancement and promoting clean energy. The official said: ?There are numerous schemes in SME and other sectors catering to these needs.?
The ambitious National Manufacturing Policy ?which has got in-principle approval from Prime Minister Manmohan Singh ? proposes to expand the share of manufacturing in India?s GDP from 16% to 25% by 2025, creating 10 crore jobs along the way.
NIMZs are outlined as ?greenfield industrial townships, benchmarked with the best manufacturing hubs in the world?. These zones, conceived on similar lines as SEZs, will be created as mega-investment regions equipped with world-class infrastructure. They would encompass vast areas with easier labour and environment laws, compliance and enjoying tax concessions. Experts believe the proposed policy would need to spell out the incentives and tax benefits clearly. Rajiv Chug, tax partner, Ernst & Young said: ?SEZs are aimed at promoting exports while manufacturing policy is targeted at promoting industrial activity. Manufacturing being a capital-intensive sector, these zones require tax incentives like investment allowance on new plant and machinery and incentives for employee working in these zones. The policy needs to be clearly spelt out in order to avoid irregularities.? Industry experts are of the view that putting in place a self declaration regime along with annual audits would help keep tabs on the use of incentives given by the government. The policy, which has run into trouble with the ministries of environment and labour, encourages foreign investment and technologies which ?will reduce compliance burden on the industry through a rationalisation of business regulations.? The policy also champions a ?comprehensive exit policy? and simultaneously emphasises on protection of workers? rights. Experts point out that the policy, which comes at a time when the industry is struggling with land acquisition issues, has no significant suggestions on this front, except requiring states to take the lead role in setting up land banks. The Prime Minister, while releasing the draft of the policy, had said that the policy would have to be formulated while adequately taking care of environmental and labour welfare concerns. He further directed that the consultation process be completed within a month, so that the policy could be brought before the Cabinet for early clearance, which would send a positive message to the investing community.