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`SEZ tax sops to cost over Rs 1 lakh cr in 4-yr period'
November, 25th 2006
Revised figure is Rs 8,717 cr higher than the previous estimate

`The generation of additional economic activity and employment would offset the loss of tax revenues'

With more special economic zones (SEZs) getting Government approval, the Finance Ministry has upped the estimated revenue loss from tax concessions to such zones to over Rs 1 lakh crore for the four-year period 2006-07 to 2009-10.

The revenue department has now estimated that revenue loss for this period could be as high as Rs 1,02,621 crore. Of this, the loss on direct taxes account is estimated to be Rs 53,740 crore and indirect tax concessions are expected to generate additional losses to the tune of Rs 48,881 crore.

The latest loss estimates were provided to Parliament on Friday by the Minister of State for Finance, Mr S.S. Palanimanickam, through a written reply.

About six months ago, that is, May 2006, the Finance Ministry had said that the estimated revenue loss on account of concessions extended to SEZs would be in the region of Rs 93,904 crore. The revised figure is Rs 8,717 crore higher.

On the steps taken by the Government to make good the estimated revenue loss, the Finance Ministry has said the Government was engaged in a continuous process of improving compliance and augmenting revenue collection.

"However, such initiatives are intended to collect the full amount of tax due from the legally defined tax base. To the extent, tax concessions to units in SEZs erode the legally defined tax base, the revenue loss is permanent," Mr Palanimanickam said.

While the Finance Ministry has been highlighting the magnitude of revenue loss to the exchequer from the tax concessions, the Commerce Ministry, however, contends that there would be a positive gain in revenue for the Government in the next five years. On their part, the Left Parties have been urging the Government that the tax concessions under the SEZ law should be revisited.

The Commerce Ministry is of the view that the generation of additional economic activity and employment would more than offset the loss of tax revenues due to the tax concessions given under the SEZ Act.

Senior officials of the Commerce Ministry had recently observed that an additional direct employment of 80,000 would be created in the zones by December this year. The indirect employment would be three times the number of direct employment. By December 2007, over five lakh additional jobs are likely to be created within the SEZs and 15 lakh jobs outside.

The Commerce Ministry has also estimated total investment to be around $10 billion and additional employment in the construction phase to be 2.6 billion man-days by December 2007. Within five years, the total investment is expected to be around $30 billion and additional employment of 15 lakh to be created within the zones.

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