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No tax breaks without exports for SEZ units

The ministry says that developers of SEZs should not get tax exemptions if SEZ units are not making any exports, reports Gaurav Choudhury.

india Updated: Feb 14, 2007 19:55 IST

The Finance Ministry has said that developers of special economic zones (SEZs) should not get direct tax exemptions if the SEZ units are not making any exports.

Government sources said Finance Minister P Chidambaram has written to External Affairs Minister Pranab Mukherjee, who is the chairman of eGoM (extended group of ministers), pointing out that there was no obligation to export on SEZ units if they do not import any capital goods or raw materials for their units.

The matter came up for discussion in the last meeting of the eGoM last month where the Finance Minister pressed for some stipulation in the rules for mandatory exports from SEZs.

The Preamble of the SEZ Act, 2005 mentions export promotion as the prime objective of the SEZ Act.

Commerce and Industry Minister Kamal Nath, the sources said, agreed that the developer needs to set up only the basic infrastructure and there was no export obligation on them.

The commerce secretary and revenue secretary have been asked to thrash out a possible solution to the matter.

The sources said that the commerce minister told the eGoM that issues relating to tax concessions to developers had been discussed in detail at the time of passing of the SEZ Bill and it would be premature to review the tax concessions as it would send wrong signals.

The commerce ministry has also told the eGoM that it is getting restive over the delay in clearances due to uncertainty over the policy.

"Since a number of foreign investors are considering investments in Indian SEZs, delays in approvals may send wrong signals," one official said. "The investors have informed the ministry that they cannot wait endlessly and could be forced to shift their investments elsewhere," he added.

Formal approval has been given for setting up of 237 SEZs. Out of these, 63 have been notified of which 23 have become functional. Investments of nearly Rs 11,200 crore have been made in these SEZs, the sources said.

Some 304 applications are pending the consideration of the Board of Approvals of which 111 have land in possession.

E-mail Gaurav Choudhury: gaurav.choudhury@hindustantimes.com