In an acrimonious exchange of letters between the finance ministry and economic think tank body Indian Council for Research on International Economic Relations (Icrier), the former has restrained the premier body from publishing the study commissioned on special economic zones (SEZs), on the account of it being miscalculated. This, despite the Prime Minister?s Office (PMO) giving a green signal to the report.
In a letter written to Icrier, the finance ministry has mentioned that ?some critical assumptions are mistaken though the conceptual framework of the study is right?.
The finance ministry has rubbished the SEZ study on the grounds that the assumptions and the calculations are flawed. The study titled ?Economy-wide Impact of Export Promotion Schemes: A quantitative assessment of SEZs, EOUs and STPI, was commissioned by the revenue department.
Icrier?s study had concluded that SEZ?s are beneficial and will have a positive impact but the finance ministry has in its calculations shown that SEZs will prove to be disadvantageous by basing its calculations on assumptions such as; corporate tax rate as 45%, and that 100% of IT investment is relocation from the domestic tariff area.
In a strongly worded document, the finance ministry has rebutted the study?s findings by questioning the assumptions. The Icrier?s study assumed the rate of corporate tax at 25%, however the finance ministry has claimed that it should be taken as 45% (33% being the corporate tax and 12% being the dividend tax).
The Icrier study made different case studies with respect to the relocation of industries from the domestic tariff area, with the first being that no IT activity is diverted from the DTA to the SEZs, second being that 60% of the IT activity is diverted from the DTA and the last being that 75% of IT and non-IT activity being diverted from the domestic tariff area. The finance ministry, however in its study assumes that 100% of IT in the SEZs is diverted from the DTA to the SEZs.
According to sources close to the development, the finance ministry has also pointed out that the Icrier study hasn?t accounted for the service tax component of infrastructure development like designers fee. Which is not calculated anywhere else in the world.
The finance ministry in its rebuttal has asked the think-tank to assume that 85% of the infrastructure within SEZs is used by IT firms, while figures indicate that at most it can be a ratio of 50:50 between IT and non-IT companies.
