There is little doubt the government is coming around to the realisation that manufacturing is crucial to India's economic recovery. In his maiden Independence Day speech Prime Minister Narendra Modi stressed on the need to make quality products within the country and reduce their imports. The prime minister said his long-term vision was to transform India into a manufacturing powerhouse.
Taking this vision to the next level, the government set up a high-level team on Saturday to review the problems of a large number of stalled economic zone projects across the country. These special economic zones, or SEZs, were meant to be tax-free industrial enclaves with reliable electricity, water and road network to boost manufacturing. Instead, a large number of them are hanging fire because of regulatory concerns.
Senior officials say the government is assessing the situation and it might come up with an incentive package for the SEZs following the release of Foreign Trade Policy. Officials also say in the Foreign Trade Policy, which will be effective for the next five years over 2014-2019, the government might announce several tariff concessions like those given to units operating outside the SEZs under the Free Trade Agreement route.
The main bone of contention for SEZ developers has been the imposition of the minimum alternate tax, or MAT, and the dividend distribution tax, or DDT. The proposal to impose 18.5 per cent MAT on the book profits of both the SEZ developer and the units located in these enclaves was announced by the United Progressive Alliance government in the Budget for 2011-12. The proposal to impose MAT and DDT on SEZs was introduced in the Finance Act even though the SEZ Act specifically mentions the stipulated tax holiday given to these zones. Despite protests from SEZs and unit developers, the taxes came into effect in April 2012.
Prior to this, SEZ developers and units were exempted from MAT in accordance with Section 115JB(6) of the Income Tax Act, 1961. The move left the developers, who had invested huge amounts in SEZ projects based on the tax incentives offered by the government under the SEZ Act, high and dry.
src:sify.com