Phase out tax breaks for SEZs

NEW DELHI: The Congress, which fears a popular backlash over SEZs, wants the Manmohan Singh government to rework the policy. The party wants tax breaks to be restricted to 10 years; processing activities to be fixed at 35% for multi-product SEZs; and framing of a new format of compensation package.

A report prepared by the party has said that the minimum size of a SEZ unit should be much larger and the use of fertile agriculture land should be prevented. This prompted the group of ministers (GoM) against rushing ahead with the process of fine-tuning the policy on Monday.

But with parts of this report being leaked to the media, the Congress on Monday sought to deny the existence of the in-house report on the SEZ policy. COngress Working Committee (CWC) members contacted by ET confirmed that they���ve already received the report prepared by Veerappa Moily. Here is a sample of the suggestions made in the report.

u Number of SEZs should be limited (not capped); minimum size should be much larger (say, 10,000 hectares each) and location should be towards coastal areas, with a focus on backward areas.

u Tax breaks are too long and should not exceed 10 years.

u Processing activities should be fixed at 35% for multi-product SEZs with no provision of relaxations.
u Transfer of land on long-term lease rather than ownership needs to be considered.

u A model compensation and rehabilitation criteria should be drawn up in consultation with states.

The Congress expectedly went into a denial mode as various arms of the government are feuding over the shape of the SEZ policy. The finance ministry has been opposing the policy on the ground that it will lead to a revenue loss of a whopping Rs 1,75,000 crore.

It wants the government to increase the minimum processing area to prevent the misuse of land. In its earlier presentation to the GoM, the finance ministry had said that SEZs will tend to be concentrated in developed states, aggravating regional imbalances. It argued that rebates should be given on indirect taxes alone.

The commerce ministry, however, has been maintaining that there was a case for tax breaks. It has also contested the finance ministry���s claim of revenue loss. ���The finance ministry���s revenue loss figures are overstated and there will be a net gain due to higher turnover and production.���

On its part, the Congress appears to be in agreement with the argument that Indian SEZs have been taken over by IT industries ��� about 60%, according to figures ��� and real estate. However, in one area, there is complete unanimity in the government ��� flexible labour laws in SEZs. The Congress report has said that more flexible labour laws and exit policies are needed to promote FDI.