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Planning Commission favours imposition of direct tax on SEZs
July, 10th 2008

Though the Planning Commission favours imposition of a direct tax on Special Economic Zones (SEZs), it does not agree with the contention that these tax-free industrial enclaves are leading to revenue loss.

"As part of economic reforms, income tax exemption on exporters were phased out. It continues in the Export-Oriented Units (EoUs) and Software Technology Parks of India. The introduction of direct tax exemptions is in some way a retreat in the direction of reforms, that has been going on. This also leads to lack of level playing field for exporters located outside the zones," said Anwarul Hoda, member, Planning Commission, at a seminar organised by Assocham here today.

Speaking about the Planning Commission's view on the SEZs, Hoda added that there should not be any change in the SEZ Act in the near term. "Our view is not to make any changes in the policy whatever be the imperfections. But level playing field is an issue that will come back again," he said.

The finance ministry is in favour of imposing a minimum alternative tax on zones and the issue is pending with the Empowered Group of Ministers (EGoM) on SEZs, which is headed by External Affairs Minister Pranab Mukherjee. The EGoM was scheduled to meet on Thursday, but the meeting has been postponed.

Hoda also said that SEZs are not real estate development and will play an important role in the urbanisation of the country. "It is expected that 50 per cent of India would be urbanised by 2050. Agriculture growth is not sufficient to sustain the increasing living standards of farmers. To stop migration from rural areas, we either let slums develop or build planned townships inside or around industrial area like SEZs," he said.

Significantly, the Reserve Bank of India classifies SEZ projects as real estate, which leads to an increase in the cost of financing by up to to per cent, compared to infrastructure projects.

Hoda added that concerns of revenue loss because of the tax-free industrial enclaves are misplaced and "exaggerated". It does not make much difference as far as the level of revenue is concerned, if 85 per cent of the SEZ produce is exported.

Moreover, Hoda also refutes the view that SEZs would lead to lesser availability of agriculture land as current data shows only one-hundredth of one per cent of the total land area in India is being used by the zones.

"I am not saying that large amount of land needs to be taken away from agriculture. What I am saying is that one hundredth of one per cent of agricultural land being diverted does not make much difference," he said.

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