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FinMin says SEZ direct tax benefits not WTO compliant
May, 26th 2008

SEZs continue to be a bone of contention between the Finance Minister and the Commerce Minister. The Finance Ministry has been wanting almost all direct tax benefits for SEZs to be eliminated. Now, it has found new ammunition to drive home its point.

 For long, the Finance Ministry has been driving home the point that SEZs are nothing but a huge revenue linkage tool. It is inventing new tools to ensure that it drives home this point. One contention that it is making right now is that rebating or exempting direct tax benefits to SEZ units and developers is not WTO compliant. Other countries might just impose countervailing duty, or CVD, on Indian exports from SEZs.

 The other contention is that this is really not equitable in terms of a tax principle. It is a distortion and might also lead to an erosion of tax base, which could ensure that the government does not actually oblige or meet its FRBM targets.

 Of course, the Commerce Minister has rubbished these claims saying that this is not really in the domain of the Finance Ministry anymore. It is an act of Parliament that governs it.

 If at all there have to be changes, it has to be routed through the Parliament. It essentially means what the Finance Ministry is claiming-tax benefits to offshore banking units, re-imposition of MAT on developers or SEZs as well as units, as also a re-imposition of dividend distribution tax on developers of SEZs. So, they are trying to finish off the entire gamut of direct tax benefits or the very fiscal edifice on which SEZs are built.

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