PC defends sun set clause for tax sops in SEZs

NEW DELHI: Strongly defending his proposal to have a sun set clause for tax sops to units in special economic zones (SEZ), Finance Minister P Chidambaram on Saturday said it was aimed at accelerating investments in SEZs.

"Idea (of proposing sun set clause for tax-holiday in SEZs) is to accelerate investment," Chidambaram said to a question from the floor at a post-budget meeting with Assocham.

Otherwise investment may be promised and it may come during a long course of 20 years in these zones, Chidambaram said, adding that the sun set clause was imposed keeping in view political term of this government that ends in 2009.

Yesterday, Revenue Secretary K M Chandrasekhar had also justified the clause, saying it is a normal practice in any kind of fiscal concessions.

"The sun set clause is used for every exemption. It (the budget proposal) is part of any decision (on concessions)," Chandrasekhar had said on the sidelines of a post-budget meeting with PHDCCI.

The industry is up in arms against the budget proposal to end tax holiday for SEZ units from 2009 onwards, saying it was against the spirit of the proposed central legislation on these zones which is to be taken up by the Cabinet after Group of Ministers finalised its recommendations.

Commerce Minister Kamal Nath had sought Prime Minister Manmohan Singh''s intervention to withdraw the budget proposal.

Nath expressed fear that it would act as a disincentive in promoting the fledgling SEZ aimed at boosting exports and employment.

This move would greatly discourage investment in the SEZ which have been touted as the vehicle of export-led growth of the economy and employment generation, sources said.

As of now, undertakings in SEZ are allowed 100 per cent income tax exemption for a period of 10 years - 100 per cent tax holiday for first five years, 50 per cent for next two years and 50 per cent of the profit ploughed back in the capital investment for next ten years.

In the draft Special Economic Zones Bill, which was referred to Group of Ministers, this exemption was proposed to be extended to 20 years, implying 20 years from the date unit starts production.