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Revenue dept denies I-T holiday for strategic investment zones
November, 30th 2006

No booster dose for manufacturing for now. The revenue department has turned down a proposal for setting up of strategic investment zones (SIZs) on the lines of special economic zones (SEZs) to boost the manufacturing sector.

The departments contention is that giving income-tax holiday to SIZs would lead to creation of virtual SEZs. The proposal for SIZs was mooted by the department of industrial policy and promotion (DIPP).

With revenue department apprehending revenue loss of about Rs 1,00,000 crore till 2010 due to SEZs, officials are wary of paving the way for more tax havens. While the revenue loss due to SEZs is estimated to cost Rs 48,881crore on account of indirect taxes, the contribution of direct taxes is pegged at Rs 53,740 crore. The government has phased out similar tax benefits for exports under Section 80 HHC earlier.

This exemption was withdrawn in 2005-06 after the department detected misuse. The argument put forth by the revenue department is that benefits to SEZs have been given to encourage exports. These zones have been built on the premise that taxes should not be exported. However, if goods are sold in domestic tariff area, they will be liable for payment of customs duty.

If domestic supplies are also treated on a par with exports by providing sops to SIZs, there would be no distinction between such supplies and exports. Also, giving such benefits to domestic supplies from these zones would create inequity as domestic manufacturer outside these zones would not be able to get tax benefits and they would be paying all taxes for carrying out a similar function. Already, export units in domestic tariff area are complaining about discrimination.

In the case of SIZ, the tax benefits will create large scale disparity, giving immense cost advantage to units in SIZs. In fact, domestic supplies do not get such benefits in any country worldover, officials of the revenue department have argued.

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