Bolstering its case against the proposed sunset clause, the Commerce Ministry has called upon its finance counterpart not to abolish the tax incentives being enjoyed by SEZs as their removal would “hurt exports and employment generation”.
The government is considering gradually doing away with tax exemptions to various sectors, including special economic zones (SEZs), and reducing the corporate tax to 25 per cent from 30 per cent over four years.
The Commerce Ministry, in its Budget recommendations, has suggested that the sunset clause should not be invoked for SEZs as it would have adverse bearing on exports from these zones, sources said.
The Central Board of Direct Taxes (CBDT) had last year proposed removal of facilities and incentives to SEZs by March 31, 2017.
According to industry experts, the sunset clause, which indicates the date in advance on which tax incentives would cease to exist, is a “retrograde step and would impact large investments in SEZ”.
The ministry has also asked for removal of the minimum alternate tax (MAT) of 18.5 per cent on SEZs’ book profits for five years.
The Export Promotion Council for EOUs and SEZs (EPCES) too feels that the government should not withdraw any tax incentives from SEZs as it might hit exports and job creation.
“We strongly oppose a Central Board of Direct Taxes proposal of withdrawal of all direct tax benefits for SEZ developers,” it has said.
During April-September this fiscal, exports from these zones stood at Rs 2.21 lakh crore as against Rs 4.63 lakh crore in 2014-15.
The SEZs enjoy 100 per cent income tax exemption on export income for the first five years, 50 per cent for the next five years thereafter and 50 per cent of the ploughed back export profit for another five years.
Overall merchandise exports of India is declining since December 2014.