Commerce Ministry for Rolling Back Special Economic Zone Minimum Alternate Tax

The Commerce Ministry has asked the Finance Ministry to roll back the minimum alternate tax (MAT) imposed on special economic zones (SEZs), saying the levy has "suppressed" the potential of these zones as a tool to promote exports and generate employment.

"We have been telling the Finance Ministry and we have recommended strongly the withdrawal of MAT and DDT and restoration of the situation as it was," Commerce Secretary Rajeev Kher told reporters in Delhi.

He said that SEZs are potential tools of industrial development, manufacturing and exports. Recognising this potential, "we feel that the whole instrumentality of SEZ requires augmentation", he said.

He also said that experiences of the last few years show that the "imposition of MAT and DDT suppressed the potential of SEZs as a tool of exports and industrial development".

"So, we feel that those impositions should be done away with as this will liberalise the environment around SEZs so that entrepreneurs will make investments which will lead to manufacturing and employment generation," he added.

The industry also has said that MAT and the dividend distribution tax (DDT) on SEZs have dented the investor-friendly image of these special zones.

In 2011, government had imposed 18.5 per cent MAT on the book profits of special economic zone developers and units. Although government last year announced an incentive package to revive these zones, several developers are surrendering their projects due to the imposition of taxes.

SEZs, which are major export hubs, contribute about one-third to the country's total exports. They provide employment to about 15 lakh.

Of the 566 formally approved SEZs, only 185 are in operation. Exports from these zones increased from Rs 22,840 crore in 2005-06 to Rs 4.94 lakh crore in 2013-14.

When asked whether Commerce and Industry Minister Nirmala Sitharaman's also being the Minister of State for Finance would make it easier for Commerce Ministry proposals and policies to be facilitated, he said, "I am sure the government has thought about that angle."