Serving ‘outsiders’ may trim SEZs’ tax sops limit

KG NARENDRANATH

TIMES NEWS NETWORK[ FRIDAY, NOVEMBER 17, 2006 01:01:14 AM]

NEW DELHI: The finance ministry has initiated a dialogue with the
commerce ministry to frame a new set of norms, prescribing that only
those non-processing activities which are based on the needs of SEZ
units will qualify for tax sops. If the proposed norms come into effect,
tax sops for SEZ developers would be commensurate to the use of urban
infrastructure by the SEZ units. Norms will be laid down to define the
needs of SEZ units.

This means that a developer won’t get excise and customs duty exemptions
for building urban infrastructure in these zones insofar as he intends
to offer the services to consumers outside the SEZ. Also, to compute the
developer’s income tax liability, the deduction won’t be permitted on
the income generated by offering such services to outsiders.

The revenue department feels developers should not be allowed to make
available facilities built for SEZ units to others for commercial gains
and still claim tax benefits. “The department feels that in the absence
of these checks, the SEZ policy could prove to be disastrous for the
real estate sector,” an official told ET.

The government has already notified the authorised non-processing
activities in SEZs. Non-processing area in multi-product SEZs can be up
to 65%, while for product-specific zones the upper limit is 50%.

“The revenue department now wants to define the extent of tax sops a
developer can get vis-a-vis the “needs” of the SEZ concerned. The
commerce ministry is, however, keen to dub the issue as a “closed
chapter”. “Why can’t the developer get tax sops for creation of the
infrastructure and its sale, too? This is anyway less expensive for the
government than building the infrastructure on its own,” said a commerce
ministry official. Finance ministry officials, however, said since a
major part of the SEZ land can be outside the processing areas, it is
imperative that the tax sops are restricted.

“We are in the process of preparing the norms for tax sops with regard
to non-processing areas,” a revenue department official told ET. It may
be noted that the RBI had virtually endorsed this view, when it
initially refused to grant infrastructure status to SEZs and advised
banks to treat exposure to SEZ projects at par with lending to
commercial real estate projects. The Left parties has also exhibited
similar sentiments.

Core facilities in the non-processing segments of SEZs include power
plants, sewage plants and roads , schools, hospitals, hotels, cinema
halls and shopping malls.

http://economictimes.indiatimes.com/articleshow/461257.cms