The finance ministry has made it tough for companies to migrate equipment to special economic zones by disallowing tax sops to those importing or shifting second-hand machinery from outside the SEZs.

These tax concessions are allowed under the SEZ rules of the commerce ministry. But the North Block, which has all along maintained that SEZs will result in revenue loss of Rs 100,000 crore in next four years, has provided in the finance Bill that tax concessions under Section 10AA of Income Tax Act would not be extended to any unit formed by transfer of old machinery.
 
Section 10AA (providing for tax sops) is applicable to any undertaking...which fulfills the condition that it is not formed by transfer to a new business of machinery or plant previously used for any purpose, the memorandum explaining the provisions of finance Bill said. The new provision runs contrary to SEZ rules of commerce ministry. Moreover, it was to be effective from February 10, 2006 -- the date from when SEZ Rules came into affect. A unit or developer may import or procure from DTA without payment of taxes or cess... all type of goods including capital goods (new or second hand)..., the Rule 27 pertaining to the SEZ Act states. Commerce ministry has been defending itself against the charge that existing units in DTA would shift to SEZs for tax concessions, saying this was not allowed. The Finance Bill is emphatic on plugging the revenue leakages through shifting of units to SEZs.

SEZs are intended to promote new industry and invesment and not to facilitate migration of existing industries toavail of tax concession, the memorandum has stated.