ADB report opposes tax sops for SEZs

NEW DELHI: In what could strengthen the hands of those opposing tax breaks for SEZs, the Asian Development Bank has attacked the government’s decision to offer unnecessary tax incentives to SEZ developers and units. “SEZ tax inducements are expensive and come at a time when the government is struggling to provide adequate infrastructure in the wider economy,” the Asian Development Outlook 2007 said, adding that tax breaks are “unnecessary”.

Mr Chidambaram, who was opposed to tax incentives during the initial days of the SEZ debate, had said that it would cost the government Rs 70,000 crore. The National Institute of Public Finance and Policy (NIPFP) too has said that the government could lose about Rs 1,00,000 crore on revenue in fiscal concessions to SEZs.

According to the current rules, export units in SEZs get a 100% tax holiday for 5 years. SEZ developers, on the other hand, enjoy a tax holiday for 10 years. But the commerce ministry was of the view that the projections of the finance ministry were hugely exaggerated.

Although all major political formations, including the Congress, had serious reservations over the tax breaks, the government went ahead with the original scheme, offering concessions to the SEZ developers. As a matter of fact, an internal Congress report prepared by Veerappa Moily had gone to the extent of seeking a review of the model as he felt that it would widen imbalances and spur social conflict.

The ADB report also said the special tax incentives could open loopholes for tax evasion and undermine investments in firms located outside the SEZs. “The units outside SEZs will suffer from worse infrastructure and higher taxes,” the report said. The report said that the need was for better infrastructure and greater bureaucratic efficiency in SEZs and not tax breaks. Referring to the issue of rehabilitation of displaced persons, the report said, “some of the loudest political opposition to SEZ projects comes from the landless, who may not receive compensation for the land conversion and who lack the capital to become self-employed.”

This assessment is not off the mark as protests are raging in many places. While Opposition political formations are backing these agitations, some NGOs have drifted away from their ideological siblings to back the protest movements. Addressing a press conference in the Capital, activist Medha Patkar opposed the SEZ policy and said it can only be implemented through state repression. The Nandigram violence has given further impetus to the anti-SEZ campaign.