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Tax deduction to SEZs route out for black money

india Updated: Nov 17, 2014 01:52 IST
Abhishek Sharan
Abhishek Sharan
Hindustan Times
black money

The Supreme Court-constituted Special Investigation Team (SIT) on black money has questioned the tax deduction given to special industrial enclaves — Special Economic Zones (SEZ), Free Trade Zones (FTZ), Software Technology Parks of India (STPI) and Export Oriented Units (EOU) — saying ‘it has become a major escape route for black money.’

In its report submitted to the apex court, the SIT said, “The deduction is applicable to manufactured products as well as software IT products and services. The deduction has been available for manufactured products from 1981 and for software products from 1994.”

“The provision from income deduction has become a major escape route for black money,” said the SIT. The report explained why: “To maximise gains from this opportunity, corporate entities convert domestic black money through the hawala route, into illicit funds abroad. Such illicit foreign funds are then used to make good the difference between the over-invoiced price and the real market price of the exported product.”

“It needs to be pointed out that such a malpractice is particularly risk-free for software and gems and jewellery exports -- most IT products are custom-made for a particular user taking into account the specific objectives to be achieved,” said the SIT. The report also pointed out that “gems and jewellery are also difficult to value as much depends on intangibles and the aesthetic sensibility of the purchaser.”

Linking black money with investments in real estate and non-agricultural land, the SIT also said, “If some form of tax is levied on open non-agricultural land, it would control to some extent the transfer of unaccounted money.”

The SIT recommended that “at the time of purchase of property worth more than Rs 50 lakh, the intimation should be given to Income Tax Department within stipulated time”.