SEZs, EOUs may not have to pay education cess

NEW DELHI: The government is likely to exempt special economic zones (SEZs) and export oriented units (EOUs) from the purview of the 2% education cess imposed in the â€˜04-05 Budget. The concession is expected to be extended to software technology parks (STPs) and electronic hardware technology parks (EHTPs) too, government sources said. The finance ministry is considering the move on the basis of suggestions from the commerce department. As of now, the cess is applicable on the domestic tariff area (DTA) sales of SEZs, EOUs, STPs and EHTPs. While sales by any SEZ unit to the domestic market attracts full customs duty, EOUs pay 50% of customs duty or excise on the product, whichever is higher, when they sell in the domestic market. After achieving net foreign exchange (NFE) criteria whereby their exports have to be higher than imports, EOUs are allowed to sell in the domestic market. This provision is to enable EOUs to manage waste, rejects and part of their production when demand in the international market slides. SEZ units and EOUs had informally demanded exemption from the 2% education cess and the commerce ministry has supported this view, sources said. The finance ministry is expected to take the final decision before the â€˜04-05 Finance Bill is passed. The concession will benefit nearly 1,700 EOUs and more than 600 SEZ units. The government has exempted SEZ units from import duties and income-tax to promote exports. Similarly, EOU units are also allowed to import inputs without paying duty. The income-tax concession available to EOUs, however, is set to be phased out by â€˜09. While the government is drafting a new legislation for SEZs, the Kelkar committee on fiscal responsibility and budget management (FRBM) has suggested that the sops available to EOUs under Section 10A and 10B of the Income-Tax Act should be phased out in two years. This has led to a situation where EOUs are demanding parity with SEZs which enjoy superior tax concessions. The exemption to SEZ units and EOUs from 2% education cess may lead to demands for similar sops from exporters who import inputs and claim duty drawback after exporting the value-added products. As of now, the cess is applicable on all Central levies including customs, excise and service tax, apart from income tax and corporate tax. The only exemptions are items on which the bound rate and the applied rate of customs duty are the same and products on which an import duty ceiling has been imposed under bilateral or international agreements. Since imposition of the cess will mean the import duty exceeding the bound rate, these items have been exempted.

SEZs, EOUs may not have to pay education cess

The government is likely to exempt special economic zones (SEZs) and export oriented units (EOUs) from the purview of the 2% education cess imposed in the '04-05 Budget.

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