Finmin honed to see SEZ sops are not a waste

HEMA RAMAKRISHNAN & MK VENU

TIMES NEWS NETWORK[ TUESDAY, MARCH 20, 2007 01:14:59 AM]
 
Weeks before Budget, both the prime minister and the finance minister spoke of the need to phase out several income tax exemptions enjoyed by India Inc.

Hard decisions on this front were expected in the Budget but the government opted to curtail only a few exemptions. The finance minister has said pruning exemptions is a continuous process.

He even told ET that at a later stage the issue of extending the minimum alternate tax to SEZ companies should be debated by the empowered group of ministers on the subject. The SEZ Act is meant to provide a stable tax regime at the core level. But rationalisation could become possible in the future without disturbing the basic tax framework.

One potential tax rationalisation in SEZs could be to restrict the scope of income tax benefits to developers. Currently, SEZ developers can claim a 100% deduction on their profits for 10 out of a block of 15 years, starting from the year in which SEZ is notified. The benefit, available from April 1, 2005, can also be claimed by companies executing work contracts for developers.

A full tax holiday was, in fact, first given to infrastructure service providers under a section known as 80 IA of the Income Tax Act. Several companies which bagged outsourcing contracts from these service providers were also claiming this tax benefit.

However, in the Finance Bill 2007, the government has proposed to deny tax benefit to companies executing work contracts and that too with retrospective effect from April 1, 2000. The proposal, if accepted by Parliament, will impact the profitability of companies executing work contracts. Can this tax benefit also be denied to companies executing work contracts for SEZ developers? Perhaps, this issue can be reviewed in the long run.

For starters, tax holiday under Section 80 IA is available to infrastructure service providers who develop, operate and maintain infrastructure facilities. The benefit is in the form of a 100% tax deduction for the first 10 years and is given for investments in roads, highways, water supply, port, airport, inland waterways, inland ports, water treatment, irrigation, sanitation and sewerage and solid waste management projects. The exemption has no termination date set for it. It is available to the power sector and also for developers of industrial parks. 
 
http://economictimes.indiatimes.com/News/Economy/Infrastructure/Finmin_honed_to_see_SEZ_sops_are_not_a_waste/articleshow/1781029.cms

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(www.ptei-india.org)

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