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Govt's net gain from special economic zones: Study
February, 04th 2010

While the Central Board of Excise and Customs (CBEC) has found that Special Economic Zones (SEZ) have led to Rs 1,75,847 crore worth of revenue losses, a study with the Commerce Ministry has said instead that the Government's net gain from SEZs was Rs 62,907 crore.

It also said the Centre's overall tax earnings from SEZs, excluding State taxes, were Rs 65,540 crore.

The study, carried out on the Ministry's behalf by PricewaterhouseCoopers (PwC), looked into the CBEC findings. The Commerce Ministry would now take this up with the Finance Ministry for discussions including the Budget-related ones, sources told Business Line.

The CBEC said the revenue foregone on raw materials used for exports were Rs 77,792 crore. But the PwC study negated this as Government schemes allow duty refund on raw material imports for exports.

While the CBEC said direct tax losses on export profits from SEZs were Rs 57,531 crore, the new study discounted this saying the Government would not have got this revenue without SEZs. Besides, SEZ investments would have gone to EOUs and STPI units as they enjoy direct tax exemption on exports till March 31, 2012.

On the CBEC's claim that the Government incurred losses of Rs 40,164 crore due to indirect tax losses on development on SEZs, PwC's calculation found the losses were only Rs 2,633 crore. CBEC used projected investments in SEZs to arrive at their number and calculated indirect taxes at 26 per cent.

While the SEZs are exempted from CVD, there is an average customs duty of 3 per cent imposed on them. Taking this into account, the revenue loss due to indirect taxes on SEZ investments are only Rs 2633 crore.

SEZs generated an Additional Economic Activity (AEA) of Rs 3,28,500 crore, including investments of Rs 99,050 crore, exports of Rs 1,76,500 crore and domestic sales of Rs 52,950 crore.

The Rs 65,540-crore tax earnings by the Centre from SEZs, includes Rs 36,135 crore from SEZ-generated AEA and Rs 24,505 crore from SEZs domestic sales, barring the profits. Also, seven lakh employees in SEZs, earning an average salary of Rs 2.5 lakh a year and paying 28 per cent income tax, contributed Rs 4,900 crore to the exchequer.

Therefore, subtracting the notional tax loss of Rs 2,633 crore from the total tax revenues of Rs 65,540 crore, the Government's net gain from SEZs is Rs 62,907 crore.

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