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SEZ firms have to pay tax on domestic services - ministry

September, 18th 2008
Indian companies with units in special economic zones (SEZ) will have to pay tax on services they offer to domestic clients, the finance ministry said on Wednesday, aimed at checking evasion. India offers tax exemptions to firms based in SEZs as part of efforts to boost exports and attract investment. But some firms are misusing the facility to offer services from their SEZ units to domestic clients. The finance ministry said in a statement companies and developers of SEZ would have to pay tax on services such as supply of manpower, technical testing and analysis to their domestic clients. The service tax, which is charged at 12.36 percent, will be exempted if exported or offered to clients within these tax-free industrial zones. India has approved 513 SEZs so far and the trade minister said on Tuesday he expected exports from these zones to double to 1.25 trillion rupees in FY09, and investment to top 2 trillion rupees by December 2009.