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Economic activity in SEZs will offset likely tax loss
July, 09th 2007
Commerce Ministry submissions to House panel

The Department of Commerce continues to bet on high economic activity in special economic zones (SEZs) to counter fears of likely enormous revenue loss from the tax incentives conferred on SEZ developers and units.

It had submitted to the Parliamentary Standing Committee on Commerce, which went into the functioning of SEZs, that there would actually be a gain to the exchequer if the economic activity takes place as planned.

In the opinion of the Ministry of Commerce, if the economic activity takes place as planned, there would not be a loss but actually there would be a gain, the Department said in its submissions to theCommittee.

The Department pointed out that there would be huge indirect tax revenue for the Government by way of consumption by those employed in the units. This would outweigh the revenue loss of about Rs 90,000 crore earlier estimated by the revenue department.

In its submission, the Department of Commerce noted that the Finance Ministry had estimated tax loss to the tune of Rs 90,000 crore. Considering the average tax rate to be about 30 per cent means that there is an income of Rs 3 lakh crore. Since the Ministry of Finance takes 20 per cent as export profit, this income means an export turnover of Rs 15 lakh crore. Forty per cent of the turnover is normally paid by way of wages and salaries. As per rough estimates, about 25-20 per cent of the amount paid as wages and salaries comes to government in terms of indirect taxes by way of consumption. This means there will be an indirect tax revenue generation of about Rs 1.5 lakh crore while the losses are being projected at Rs 90,000 crore, the Commerce Ministry has said.

Till date, about 128 SEZs have been notified and Rs 44,142 crore worth of investments made. Total exports from the notified zones are expected to be about Rs 67,000 crore during 2007-08. Over the next four years, total investments in SEZs are expected to be about Rs 3.6 lakh crore

The revenue department had last year estimated tax lossof about Rs 90,000 crore. With more SEZs now in the fray, the revenue department expected the losses to be much higher.

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