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Minimum Alternative Tax imposed on SEZs to stop tax distortion
April, 14th 2011

Minimum Alternative Tax (MAT) is imposed in the special economic zones (SEZs) to stop distortion in direct taxes for the better interest of the country, a top finance ministry official said in Kolkata on Wednesday.

"MAT is provided in the direct tax code for the SEZs to stop the distortion in the direct taxes for the better interest of the country," central Revenue Secretary Sunil Mitra said.

He was taking part in an interactive session on "Taxation Policy Initiatives and Economic Growth", organised by the Merchants' Chamber of Commerce (MCC) here.

On the imposition of MAT in SEZs in the union budget, he said: "It is because of the exemption given all these years that discrepancies have come into the tax system.

The Rangarajan Committee and Kelkar Committee stated that exemption leads to distortions of transfer of profit.

"In the SEZs in particular, I have seen the extent of deduction by certain developers. They have transferred profits to the group companies. How long can we allow this? There will be no profit-link reduction. There will be only investment-link reduction," he pointed out.

To a question on excise duty imposed on readymade garments and hosiery products, Mitra said that the sector had enjoyed exemption from the time of the country's independence.

"In 2002, we made an attempt (to impose excise duty), but it had to be rolled back in 2004. We are not rolling it back this time. The intension is not to tax small manufacturers of hosiery and garments," he said.

Since there is value added tax on garments, the manufacturers can as well pay the excise duty, he said.

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