Special economic zones (SEZs), which were hit hard by the twin-blow of a minimum alternate tax (MAT) on developers and units and a dividend distribution tax (DDT) on developers in 2011-12, seem to have overwhelmed the damaging impact of these imposts.
Special economic zones (SEZs), which were hit hard by the twin-blow of a minimum alternate tax (MAT) on developers and units and a dividend distribution tax (DDT) on developers in 2011-12, seem to have overwhelmed the damaging impact of these imposts. Commerce ministry data suggest exports from SEZs jumped 11% in rupee term in 2017-18 to Rs 5,81,033 crore, higher than the 8.4% growth in the country’s total outbound shipments (both goods and services) in the domestic currency.
Separately, data sourced from the state-backed Export Promotion Council for EOUs and SEZs (EPCES) suggest chemical, pharmaceutical and petroleum exports from such zones — led by Reliance Industries’ Jamnagar SEZ — jumped 22% from a year earlier to Rs 1,50,242 crore in FY18, helped by higher oil prices. Software exports, too, jumped 17% last fiscal. Also, the UAE beat the US as the biggest export destination for Indian SEZs.
While the growth of exports from SEZs has exceeded that of the country’s total outbound shipments for a third straight year, what distinguished their decent performance in 2017-18 was that it came off unfavourable base.
The 12% growth in 2016-17 and 0.8% in the year before were aided by relatively conducive base effect, as the exports were earlier hit by MAT and DDT.
Latest provisional data show chemical, pharma & petroleum products accounted for just over a fourth of total shipments from such zones in FY18, while computer and software services made up for around 48%. This suggests RIL and a host of large IT corporations, including TCS, Infosys and Wipro, continue to enjoy a dominant role in shaping the overall performance of SEZs. But they also mask relative slowdown in gems and jewellery, textiles and garments, leather and footware, food processing and agro industries.
EPCES chairman Vinay Sharma told FE: “The businessmen in SEZs have reconciled to the fate of having to live with MAT and DDT and they have moved on.” Apart from the usual heavyweights, new segments of exports like bio-technology and non-conventional energy are also performing well, he said. Export trend so far seems to suggest good growth in the current fiscal as well, he added.
Exports to the UAE touched Rs 49,691 crore in FY18, up almost 29% from a year before, and compared with those worth Rs 47,746 crore to the US.
As of March, there were 223 operational SEZs in the country, with 5,146 approved units. Over a half of these SEZs house IT/ITES, electronic hardware, semiconductor segments. Despite the good show, some developers are categorical that SEZs could have performed even better had the government decided to scrap both the MAT and the DDT.
Currently, MAT is levied at 18.5% on the book profit of companies, with the effective rate touching around 21%, factoring in surcharges and cess.
In fact, the commerce ministry has been consistent in its demand for the removal of MAT and DDT in recent years on grounds that the tax exemption will improve exports. However, the finance ministry is yet again reluctant to offer breather, fearing revenue losses.
EPCES’ Sharma had earlier said: “We are not seeking any special concession. All we want from the government is to restore the original SEZ Act (which didn’t have MAT, DDT and latest sunset date for expiry of I-T incentives) that it had offered and diluted substantially later.”
Before the MAT and the DDT were imposed in 2011-12, the growth in exports from SEZs was as high as 121% (2009-10) and 43% (2010-11), far exceeding the increase in the country’s overall goods and services exports for these years.