The proposed Direct Taxed Code (DTC) is likely to adversely affect the exponential rise in exports from special economic zones (SEZs). Exports from SEZs rose 68 per cent during the April-June period to Rs 58,685.46 crore, compared to the corresponding period last financial year.

Exports from the tax-free enclaves had risen 121.40 per cent to Rs 2,20,711.39 crore in 2009-10, from Rs99,689 crore the previous year. “It is unlikely that exports would continue to register such growth figures in the years to come. The slowdown has already set in due to uncertainty in DTC,” said a senior commerce department official today.Exports from SEZs continued to rise unabated even as merchandise shipments from the country as a whole were plummeting during the financial crisis. During 2009-10, exports from SEZs to other countries stood at Rs13,937.04 crore, while exports to the domestic tariff area or the area outside SEZs was worth Rs19,201.78 crore.

“Export from the SEZs are done on the basis of long-term contracts. That is why they were not affected by the financial crisis… Two to three SEZs get operational every month,” the official added. At present, there are 114 operational SEZs across the country. Of these, 14 are multiproduct SEZs, employing around 550,323 people, according to the latest data compiled by the commerce and industry ministry.

SEZ units are given 100 per cent tax exemption for the first five years, 50 per cent for the next five and 50 per cent of the ploughed back export profit for the next five years under Section 10 AA of the Income Tax Act. Under section 115JB of the Income Tax Act, they are also exempted from minimum alternate tax. Besides these, SEZ units are also exempted from central sales tax, service tax and state taxes and levies.

However, according to the draft DTC Bill, continuation of the 15-year tax holiday on for those units who would be operational by March 31, 2014. In other words, the units have to begin operations and begin exporting before this date to avail of income tax concessions available for SEZ units, even if they have got all the necessary approvals.

“Time period provided for the new units is insufficient. SEZs notified till March, 2012, have been provided continuation of IT benefits under Section 80IAB and those that come up in the next 2 years have been given I-T benefits under Section 10AA. According to the provisions of SEZ rules, developers are given 3 years, which can be extended further, for development of SEZs. Naturally, SEZ units would come up after this period. Hence, this time period needs to be extended further,” said R K Sonthalia, chairman, Export Promotion Council for EoUs and SEZs.

Source: Business Standard