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« AITUC against SEZs | Home | Haryana SEZs have a long way to go »

Kamal Nath to further SEZs cause in EGoM

The commerce ministry will be pushing again for treating bank credit to special economic zones (SEZs) projects on a par with other industrial advances. The RBI had, in September 2006, directed state-owned banks to offer loans to SEZs on the same terms and conditions as offered to real estate projects. Treating SEZs like real estate resulted in higher interest costs since banks have to make extra provisioning and assign higher-risk weightage on such advances. With only a few months to go for the general elections, the Government has once again decided to clear out the air around some of the long-standing issues pertaining to SEZs.

The Empowered Group of Ministers (EGoM) on SEZs, chaired by external affairs minister Pranab Mukherjee, is likely to meet later this month, possibly around October 20, to try and sort out certain problems being faced by SEZ developers and units. Some of the major issues yet to be resolved are those of the interpretation of Section 10AA (7) of the Income Tax Act, imposition of a minimum alternate tax (MAT) of 10 per cent on SEZ units, removal of export duty on supply of steel to SEZs, availability of central value-added tax (Cenvat) credit to domestic manufacturers on inputs used in finished goods supplied to SEZ developers and the contention over the RBI’s definition of SEZs as real estate and not infrastructure projects.

Commerce ministry has sought an amendment to the Section 10AA (7) of the IT Act since SEZs are supposed to be given a 100 per cent tax break on exports. With this clause, however, tax exemption is bound to be given based on the ratio of export sales from the unit to the total turnover of the entity. This glitch has greater consequences particularly for IT SEZs, which are not usually set up as separate subsidiaries unlike in multi-product or manufacturing SEZs.

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