In order to create renewed interest of investors in the SEZ sector, the Government is currently in the process of restoring tax benefits for manufacturing special economic zones, while continuing to tax the rest to minimize revenue losses. As of now, exports from manufacturing SEZs, excluding gems & jewellery and petroleum, account for about 10% of total SEZ exports, exempting them from taxes would not cost the exchequer heavily, said official sources, adding that the idea behind rolling back taxes imposed on manufacturing SEZs is to boost production activity in the country. The previous UPA regime had imposed Minimum Alternate Tax (MAT) of 18.5% and Dividend Distribution Tax (DDT) of 15% on SEZ developers and units two years back thereby marking the end of the tax holiday promised to the zones for a 10-15 year period in the SEZ policy.
Available reports suggested that currently Commerce Ministry is trying to convince the Finance Ministry to restore the tax benefits as it affected profitability of units and resulted in a sharp drop in flow of investments into the zones. On this score, a compromise solution suggested by the Commerce Ministry is restoring tax benefits to manufacturing SEZs, not including gems & jewellery and petroleum products, as these account for only Rs.50,000cr of exports every year. In fact, the profit margins of manufacturing exports are also lower than IT SEZs and would entail revenue losses of not more than Rs. 400cr a year. SEZs in the IT, petroleum products and gems & jewellery sectors, on the other hand, account for almost 90% of Rs.5 lakh-cr worth of exports from all SEZs. Out of 566 SEZs approved by the Government, only 185 SEZs have come into operation and this has been caused because of the abrupt introduction of MAT and DDT on SEZs from 2012 making it tough for developers to bring in investments into the tax free enclaves.