Exports from special economic zones (SEZs) grew by 15% year-on-year to Rs 3.6 lakh crore in 2011-12, according to the data by the Export Promotion Council for EOUs and SEZs (EPCES).

During 2010-11, exports from tax-free enclaves stood at Rs 3.1 lakh crore.

"The imposition of Minimum Alternate Tax (MAT) on the book profits of SEZ developers and units has discouraged investments," EPCES Chairman Jatin R Mehta said in a statement today.
As on March 31, this year, total investments in SEZs were about Rs 2.01 lakh crore and the sector has provided employment to 8.4 lakh people, he said.

Besides, the council said major SEZ developers are concerned over the deadline for profit-linked deductions with introduction of the Direct Tax Code (DTC) from April 1, 2013.

The code, which will replace existing Indian Income Tax Act 1961, intends to cut tax rates to bring more people and companies under the tax net, phase out profit-linked exemptions for companies and replace them with investment-linked incentives.

"We request the Department of Revenue that DTC may not be implemented till 2015 in respect of SEZs as it will help in increasing exports and investments," Mehta said.

Under the SEZ Act, SEZ units get 100% tax exemption on profits earned in the first five years of operation, a 50% exemption for the next five years and another 50% exemption on re-invested profits in the following five years.

SEZ developers, on the other hand, get 100% tax exemption on profits for 10 years, which they can choose to invoke within the first 15 years of operation.

The council said of the 589 formally approved SEZs, 389 SEZs have been notified and 153 SEZs were in operation as on 31st March, 2012.

IT, IT-hardware, petroleum, engineering, leather and garments are the leading exports from the SEZs.

In the wake of uncertainties over tax sops, scores of SEZ developers were given more time to execute their project and some of them have surrendered.