Govt tightens SEZ rules, blocks short cut to sops
Economic Times
Tuesday, August 22,2006
NEW DELHI: Existing units planning
to relocate to special economic zones (SEZs) to take
advantage of tax sops are in for some disappointment.
The commerce ministry has introduced amendments in the
SEZ rules to check diversion of exports and production
activity from domestic area to SEZs.
The amendments seek to introduce conditions to qualify
for the tax benefits. Commerce ministry officials told
ET that the changes will take care of the finance ministry’s
apprehensions of potential revenue leakage due to relocation.
As per the new rules, companies operating in SEZs will
have to make fresh investments on plant and machinery.
Companies planning to install used plant or machinery
will run the risk of being disqualified, sources said.
The other amendment relates to the definition of trading
activities. The commerce ministry has now clarified
that trading shall only mean import for the purpose
of re-export. Put simply, only such companies who import
goods to re-export can claim such trading activities
for an income tax rebate.
Trading by companies who source products from domestic
tariff area (any domestic market outside the SEZ) for
export will not qualify for the tax benefits.
The amendment notifications come ahead of the crucial
empowered group of ministers meeting on SEZs. The meet
will review the cap of 150 placed on the number of approvals.
There are 200 more in the pipeline. LB Singhal, director
general of the Export Promotion Council for EOUs &
SEZ units, said the cap on the number of SEZs has to
go.
“The basic idea behind SEZs is to attract investments,
create infrastructure and employment and generate economic
activity. There is no logic behind putting a cap on
the number,” he said. With the commerce ministry
taking care of the revenue leakage possibilities, the
EGoM should remove the ceiling on the number of approvals,
he added.
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