MAT, DDT Waiver For SEZs Won’t Be Restored, Says Govt – Financial Express – 29-Nov-2014

December 3, 2014 - Uncategorized

On a day when the country’s top auditor observed that special economic zones (SEZs) have barely boosted economic growth and hinted that the Act was widely used for land grabbing, the government said in Parliament that the original waiver for these zones from the minimum alternate tax (MAT) and dividend distribution tax (DDT) won’t be restored.

In a performance audit report tabled in Parliament on Friday, the Comptroller and Auditor General (CAG) said the SEZs set up with the objective of propelling exports, investments and job creation could not live up to the promises. “Land appeared to be the most crucial and attractive component of the scheme. Out of the 45,635.63 hectares of the land notified in the country for SEZ purposes, operations commenced on only 28,488.49 hectares of land. In addition, we noted a trend wherein developers approached the government for allotment/purchase of vast areas of land in the name of SEZs. However, only a fraction of the land so acquired was notified for SEZ and later denotification was also resported to within a few years to benefit from price appreciation.”

The SEZ Act came into effect in February 2006 and since then 542 such zones have been approved of, which 196 are functional. Various tax incentives — covering corporate tax, excise and customs — are accorded to these zones and units therein. SEZs are supposed to meet net foreign exchange earner criteria.

The SEZ developers and units had cited the removal of MAT/DDT exemptions as one of the main reasons affecting performance, in addition to the economic slowdown and weak overseas demand. RIL opting to take 40% of its Jamnagar facilities from the SEZ ambit was also a dampener.
An 18.5% MAT on SEZ developers and units and DDT on developers were imposed in the FY12 Budget by the then finance minister Pranab Mukherjee as the revenue department in the UPA regime had begun to see SEZs as drain on the exchequer.

The CAG found that the tax concessions (Rs 55,158 crore-worth income tax concessions and Rs 27,947 crore indirect tax (customs) concessions) given to these enclaves between FY07 and FY13 did not result in proportionate benefits to the country in terms of the objectives behind the SEZs Act.

Earlier, the finance ministry had in a study pegged the revenue loss at Rs 1.76 lakh crore from tax holidays granted to SEZs for 2004-10. The CAG report does not include revenue foregone on account of central excise and service tax. The commerce department has long argued that the gains from SEZs to the economy (in terms of infrastructure creation, employment generation and exports) outweigh the notional revenue foregone.

The CAG also found “systemic weakness” in direct and indirect tax administration to the tune of Rs 27,131 crore and Rs 1,150 crore-worth in-eligible exemptions/deductions given by the government.

The CAG report showed that though its sample size of 117 developers/units in 12 states had projected generation of employment to over 39 lakh people, only 2.8 lakh people got jobs even five years after notification of the SEZ, a shortfall of around 93%.

In a study of 79 units/developers in 11 states, it was found that though they projected an investment of Rs 1.95 lakh core, the actual investment was only worth Rs 80,176 crore, leading to a 59% shortfall. Similarly, there was a 74.5% shortfall in export projection and 79.5% shortfall in projections of net foreign exchange (where exports by an SEZ unit should be more than imports), the CAG study found. All this led to the concessions given to these enclaves not resulting in the expected gains to the economy. gnificant trend in SEZ growth that the CAG observed was the preponderance of the IT/ITeS industry. Of the total SEZs in the country, an overwhelming 57% was in IT/ITeS while just 9.6% was in the multi-product manufacturing sector, it found.


Financial Express

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