The finance ministrys plans to slash or eliminate assorted tax concessions for special economic zones (SEZs) have gained momentum with parliamentarians, cutting across party lines, endorsing the move on Friday.
MPs told finance minister P Chidambaram that tax exemptions for SEZs should be given for a limited period and linked to their employment generation. Their comments came at the finance ministrys consultative committee meet on relooking tax incentives, including those on SEZs. Government sources said the ministry is considering phasing out those tax concessions that have outlived their utility.
As tax sops for SEZs cannot now be diluted in a hurry, the ministry is building a climate of opinion against other concessions. Export sops, in particular, could be targeted. The ministry will review all exemptions, other then two types of tax concessions; one relating to international agreements (both bilateral as well as multilateral agreements) and other concerning scientific research, the government source said.
The exercise is part of the governments commitment to evolve a moderate tax structure in the next budget, as indicated by finance minister P Chidambaram at the Economic Editors conference this week. But he also said moderate taxation would demand pruning of exemptions.
A background paper circulated at the meeting said it has been estimated that due to SEZ tax sops, the government may lose over Rs 1,02,000 crore in four years. While revenue loss under the direct tax slab is estimated at Rs 54,000 crore, it is pegged at Rs 48,000 crore in the indirect tax head. It is expected that there would be 300 SEZs between fiscal 2006-07 and 2009-10.
The FM also told the committee that pruning of incentives was required to meet the fiscal responsibility and budget management targets and increase the tax-to-GDP ratio. Without naming industries, he said, A close hard look at the present system of exemptions in favour of particular sections of taxpayers is absolutely essential.
The finance ministry has already put up the list of exemptions that it wants to clip on its website for comments.
RSP MP Abani Roy said that it should be made mandatory for the Board of Approval to visit all proposed SEZ sites before issuing clearances. He said this will ensure that agricultural land did not get diverted to such zones. On his part, Chidambaram said the government has now made it mandatory for states to certify that the land provided for SEZs were not agricultural land.