No tax sops for old machinery to SEZs

Posted online: Monday, March 26, 2007 at 0054 hours IST

NEW DELHI, MAR 25 : The finance ministry has made it tough for companies
to migrate equipment to special economic zones by disallowing tax sops
to those importing or shifting second-hand machinery from outside the SEZs.
These tax concessions are allowed under the SEZ rules of the commerce
ministry. But the North Block, which has all along maintained that SEZs
will result in revenue loss of Rs 100,000 crore in next four years, has
provided in the finance Bill that tax concessions under Section 10AA of
Income Tax Act would not be extended to any unit formed by transfer of
old machinery.

"Section 10AA (providing for tax sops) is applicable to any
undertaking...which fulfills the condition that it is not formed by
transfer to a new business of machinery or plant previously used for any
purpose," the memorandum explaining the provisions of finance Bill said.
The new provision runs contrary to SEZ rules of commerce ministry.
Moreover, it was to be effective from February 10, 2006 -- the date from
when SEZ Rules came into affect. "A unit or developer may import or
procure from DTA without payment of taxes or cess... all type of goods
including capital goods (new or second hand)...," the Rule 27 pertaining
to the SEZ Act states. Commerce ministry has been defending itself
against the charge that existing units in DTA would shift to SEZs for
tax concessions, saying this was not allowed. The Finance Bill is
emphatic on plugging the revenue leakages through shifting of units to
SEZs.

"SEZs are intended to promote new industry and invesment and not to
facilitate migration of existing industries toavail of tax concession,"
the memorandum has stated.

—PTI

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