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Legislation on special economic zones — Commerce Ministry optimistic GoM will resolve differences

G. Srinivasan

The 20-year I-T benefit on SEZs by way of legislation would not allow the revenue department to tinker with this in later years, sources said.

New Delhi , Feb. 8

THE Commerce Ministry is quite optimistic that the Group of Ministers headed by the Defence Minister, Mr Pranab Mukherjee, on resolving the differences over the proposed Central legislation for special economic zones meeting here on February 11, would take a decisive step to enable a Bill on SEZs to be tabled in the forthcoming Budget session of Parliament.

Highly-placed sources in the Government told Business Line here that as the original architect of the SEZ concept to attract foreign direct investment in greenfield ventures in these zones, which would also create world-class infrastructure and generate substantial employment opportunities all across the country, the Commerce Ministry is intensely involved in clearing the decks for the Central Act to be in place.

Asked about why the issue which had been studied at the inter-Ministerial level, after which a Cabinet note was made and presented to the Cabinet, could not be approved, the sources said that basically it boiled down to notional revenue loss of the revenue department and loss of decision-making by other departments might suffer if the Central legislation were in place.

The sources said that as per the existing provision, there is 100 per cent income-tax exemption to SEZ units for five years, 50 per cent for two years, thereafter, and 50 per cent of ploughed back exports for next three years. But in the proposed SEZ legislation, there would be 100 per cent exemption for five years, 50 per cent for the next five years and 50 per cent of ploughed back exports for 10 years.

"So what was five, two and three years were altered to five, five and 10 years, doubling the benefits to be conferred on the prospective units and builders of SEZ," the sources said, adding that such a 20-year income-tax benefit on SEZs by way of legislation would not allow the revenue department to tinker with this in later years. Because the stable fiscal policy is the passport for units in SEZs to gravitate and grow unhindered, they said.

Adequate safeguards

Again, the sources discounted the apprehensions that the offshore business units (OBUs) might be used as a tax haven or money laundering purposes stating that the Reserve Bank of India would specify the terms and conditions subject to which alone an OBU might be set up and operated in the SEZ.

Even the setting up of an international financial service centre in a SEZ would entail conditions by the RBI, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and such other authorities concerned to preclude any scope for misuse.

The sources said that both these issues had been studied threadbare and adequate safeguards do exist within the provisions of the laws of the land.

The idea of giving extended income-tax benefits and establishment of OBUs in the SEZs is to make the scheme attractive for foreign direct investment flows into these zones.

Any putative revenue loss being suffered on this score even notionally could be made good by the export receipts from these units once they become fully functional with the added advantage of new export units setting off a multiplier effect in terms of quality products and creation of more employment to people within the country in these zones.

The sources said that as the SEZ units during the first three quarters of the current fiscal notched up a 28 per cent growth, the early finalisation of the legislation for SEZs and the introduction of the Bill would go a long way in giving a push to this concept.

The sources said that the SEZ in Dubai, functioning for 50 years and the SEZs in China had become a magnet for FDI and the same could be feasible in India if only the initial support measures for entrenching the concept firmly into the economy are fully extended by all the wings of the Government.

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