SEZ tax holiday will remain open-ended to boost exports

NEW DELHI: Phasing out tax exemptions is very much on the finance ministryâ€™s agenda in the forthcoming Budget. But will finance minister P Chidambaram consider knocking off the open-ended tax holiday for Special Economic Zones under Section 10 A and 10 B of the Income Tax Act? Perhaps not, if the finance ministry sees merit in the inter ministerial recommendation on this issue. The commerce and industry ministry has asked the finance ministry not to impose a sunset clause on the income tax holiday available to SEZs. It reckons that the benefit should continue in the present form to boost exports. Sunset clause refers to a predetermined date of expiry of a tax concession. Right now, tax breaks on export profits are available for units set in a Special Economic Zone (SEZ) beyond â€™09-10. Simply put, a unit in an SEZ enjoys income tax benefits for 20 years, irrespective of the period when it is set up. These units enjoy a deduction equivalent to 100% of the export profits for the first five years. A deduction equivalent to 50% of the export profits is available for the next five years. A further deduction up to 50% of the export profits is available for the next 10 years, subject to re-investment conditions. I-T concessions to SEZs are hence available for 20 years. However, such an open-ended exemption is not available to EOUs, EHTPs or software technology parks. The sunset clause under 10 A and 10 B of the Income Tax Act expires in â€™09-10 â€” which means that these units will have to be set up before the AY â€™09-10 to avail of the tax benefit for 10 years. Since export processing zones (EPZs) which have been converted into SEZs were earlier on par with EOUs, the sunset clause should not restrict one category, exporters have argued. Since both segments were on par before EPZs were converted into SEZs, EOUs want parity to be restored under the new system too. â€œNothing has changed with the EPZs except the name. We expect an equal treatment for EOUs tooâ€�, said R Veeramani, chief of Gem Granitespect. What is being sought is parity for EOUs and EPZs.

SEZ tax holiday will remain open-ended to boost exports

Phasing out tax exemptions is very much on the finance ministry's agenda in the forthcoming Budget.

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