Social Economic Zones Analysis

It’s been five years since the SEZ Act 2005 came into being. Over 580 SEZ approvals, much real estate speculation, half-a-dozen farmers’ protests, and an economic slowdown later, it is time for the Ministry of Commerce to admit that the policy has been a damp squib on the economic front. Developers who were falling over each other to get their SEZ plans approved seem to be looking for greener pastures, as they now line up to get their SEZs denotified or withdrawn. Many others continue to seek extensions to their in-principle approvals, even as they experience problems accessing land or coming up with the requisite finances. In October 2010, the Board of Approvals at the ministry, which was clearing more than 40 projects an hour a few years ago, did not receive a single proposal!
The Direct Tax Code Bill 2010, tabled by the Ministry of Finance in the last session of Parliament, would appear to be the latest spanner in the works. The future of tax exemptions -- the most attractive feature of the SEZ policy for new units in SEZs -- looks bleak as the DTC threatens to withdraw location-specific exemptions from the dividend distribution tax or minimum alternative tax for SEZs in the country. Further, the DTC has proposed a substitution of the profit-based incentives prevalent under the existing provisions of the Act with investment-based deductions for SEZs notified on or after April 1, 2012. Though the Bill tabled in Parliament this August is a watered down version of the original draft, it does put the focus back on the concerns of the Ministry of Finance in relation to revenue losses involved in SEZ development in India.
The finance ministry expressed its apprehensions over tax sops to SEZs when the Central SEZ Act was passed in 2005. According to the Parliamentary Standing Committee’s 83rd report, presented in the Rajya Sabha in June 2007, the Ministry of Finance estimated a revenue loss of Rs 175,487 crore from tax holidays granted to SEZs, for the period