We forget the contribution made by
this sector in bridging the trade deficit. The Ministry of Finance
should re-look while finalizing Union Budget 2013-14 especially in view
of the widening of trade deficit year after year
The Export Promotion Council for EOUs and SEZs (EPCES) is confident that the Finance Minister will announce a growth-oriented exporter-friendly Union Budget 2013-14 , which will be presented in February next year. The Ministry of Finance has already started pre-budget consultations with different stakeholder groups. In this regard, the Minister is also meeting different export promotion bodies, trade associations, etc.Mr. P. C. Nambiar, Chairman, EPCES, has said that as of 2005-06, i.e. prior to the enactment of SEZ Act 2005, the investment in Central Government/ State/ Private Sector established SEZs was just Rs. 2,793 crores, total employment generated by such SEZs was just 1,34,000 persons and the export was to the order of Rs. 22, 840 crores.
As of Sept. 30, 2012 the total investments made in SEZs were Rs. 2,19,000 crores, employment generated was 8, 93, 465 and the physical exports made during 2011-12 was Rs. 3,64,477 crores. This sector has registered an export growth of 36% over the previous period in the first half of current fiscal year. The value of exports made by SEZs during April-September 2012 was of the order of Rs. 2, 36, 296 crores.
In order to motivate 425 SEZs, formally approved but have not yet become operational, we need to re-look at the tax regulations. A tax-free regime offered in 2005 has made developers and potential exporters to look at SEZs. With the introduction of MAT there is a burden of over 20% on book value of profits being charged onto SEZ developers and SEZ units.
This unexpected taxation has forced the potential investors to re-look at their investment plan. On a rough calculation, it is pointed out that the MAT, if paid, is not fully recoverable within 10 years of they becoming taxable and thereby it becomes not an adjustable tax provision but a tax paid during a tax-free regime.
To explain the situation, the total exports of SEZs during 2011-12 were Rs. 3,64,478 crores. The average profit margin of exporters was about 8% (Refining sector 3%, IT sector 20% and the gem and jewellery sector 6.6%). Applying MAT @ 20%, the approximate tax collection would have been just 1.5% (approx Rs. 5,830 crores). The tax loss, comparing to the level of economic activity and its positive impact that would have brought in by the SEZ Sector, would be very insignificant. While we discuss the support given to export sector, only the tax and duty foregone is highlighted. We forget the contribution made by this sector in bridging the trade deficit. The Ministry of Finance should re-look while finalizing Union Budget 2013-14 especially in view of the widening of trade deficit year after year.
Mr. Nambiar also said that out of 586 SEZs formally approved, 385 are already notified. It means that they are having the land in their rightful possession and if a conducive economic environment is provided the envisaged investment can be brought in by them within a shortest possible period.
Developers are probably shying away from making investments as they are apprehensive of getting units to establish their units in their SEZs if there is no tax advantage available to them. The major benefit a unit can get is the income tax benefit comparing to export-oriented units.
EPCES is of the view that while considering the performance of 161 operating SEZs, this sector will look upon for greater heights of investments, employment generation and physical exports if other 224 notified SEZs become operational.
The Chairman further stated that in view of the current economic scenario, we need to re-look at the policy provisions to induce confidence in the investors. It is also worth considering that if no zero tax regime can be offered, an advance tax @ 7.5% (which was the introductory rate of MAT in 2000) can be imposed on SEZs and units without any time restrictions for adjusting such advance tax paid.
EPCES is confident that while announcing the Union Budget 2013-14 the request of the Council to review decision on MAT & DDT applicable to SEZs will be taken into consideration.
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