New Delhi, January 4, 2017

Special economic zone (SEZ) units and developers are unlikely to get relief from the minimum alternate tax (MAT) in the coming Budget despite a strong pitch for their removal by the commerce ministry, according to sources.

The revival of SEZs — once a growth engine for the country’s exports — was among the key steps proposed by the Board of Trade (BoT), headed by commerce and industry minister Nirmala Sitharaman, last year to help reverse a slowdown in the country’s exports. The BoT could again suggest steps to boost SEZs when it meets later this month, said an official. Currently MAT is levied at 18.5% on the book profit of firms, with the effective rate over 21%, factoring in surcharges and cess.

In fact, the commerce ministry has been consistent in its demand for the removal of MAT and the dividend distribution tax (on SEZ developers) in recent years on grounds that the tax exemption will improve export competitiveness in times of a slowdown in the international markets they cater for. However, the finance ministry is again reluctant to offer any breather, fearing revenue losses.

“The proposal (to scrap MAT, DDT) is very much there (this year), but you have to take a hard look at the revenue implications before anything of this sort is done,” an official source told FE. In the last Budget, international financial services centre were exempt from the DDT, but retained the same (at 20.4%) on SEZs.

Before the MAT and DDT were imposed in 2011-12, growth in exports from SEZs was as high as 121% (2009-10) and 43% (2010-11), far exceeding the increase in the country’s overall goods exports for these years. After a near 11% drop in 2014-15, exports from SEZs dropped 3.3% in the last fiscal.

Although they paid a few thousand crores as MAT in the last fiscal and another hundreds of crore as the dividend distribution tax, SEZs availed of direct tax breaks of R18,400 crore in 2014-15, a finance ministry official had earlier said, arguing that SEZs were still benefitting.

[The Financial Express]