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Par Panel for restoration of tax benefits for SEZ

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New Delhi: A Parliamentary Committee has suggested restoration of tax benefits in terms of MAT and DDT for special economic zones, while also recommending a performance audit of these enclaves by the CAG. The committee is surprised to note that the Ministry of Finance took the decision of withdrawing MAT and DDT exemption for SEZs by way of Finance Bill, 2011 unilaterally, the Parliamentary Standing Committee on Commerce said in its report.

It recommended that the Department of Commerce take up the matter afresh with the Ministry of Finance and sensitise the ministry about the importance of these zones in the well being of Indian economy.

“The committee agrees that the original benefits in terms of minimum alternate tax (MAT) and dividend distribution tax (DDT) needs to be restored,” it said. In 2011, the government had imposed 18.5 per cent tax on book profits of special economic zone developers and units. It also opined that SEZs have lost direction after the initial euphoria and it is worrisome to learn that out of 352 notified SEZs, only 168 are operational.


There are reports that a large number of these SEZs being “rapacious” and turning as “real estate players” rather than creating a manufacturing and service eco-system, it said. “The committee is of considered opinion that a performance audit of the SEZs may be carried out by C&AG,” it said adding the Department of Commerce should engage C&AG for conducting the audit.

The committee said “it is not surprised to notice the decrease of 7.61 per cent” in exports from these zones
2014-15. “This was bound to happen since a slew of expor incentives were given to exporters outside SEZ which doubled up as disincentive to invest in SEZ,” it said. Further, the signing of free trade agreements are resulting in elimination of substantial reduction in duties, also eroded the advantage of SEZ.

The committee also recommended the department of commerce to furnish details on de-notified zones within one month so that it may decide future course of action in the matter. It suggested the department to take necessary corrective measures to ensure these zones are able to discharge their mandate in an effective manner.

“The committee feels that the labour laws as applicable to national investment and manufacturing zones may also be extended to SEZs to make them economically vibrant,” it said. It suggested “amending the SEZ Act, 2005 suitably in this regard”.

On India’s exports, it said the government has not been able to offer any out of box solution to bridge the gap between exports and imports.