Mumbai: Blaming the global economic slowdown and uncertainty over tax laws governing special economic zones, or SEZs, India’s largest private engineering firm Larsen and Toubro Ltd (L&T) plans to drop its proposed 25-acre information technology (IT) SEZ in Mumbai.
The commerce ministry’s board of approval for SEZs will take up L&T’s request for withdrawal at its 8 June meeting, according to the agenda of the meeting, a copy of which was reviewed by Mint. An L&T spokesperson declined to comment on the issue.
“Larsen and Toubro was granted formal approval for setting up of sector-specific SEZ for information technology and information technology-enabled services at Powai, Mumbai, Maharashtra, over an area of 10 hectares,” the agenda of the board meeting noted.
Acquired in 1948, L&T’s Powai campus is spread over 100 acres and is one of the few large industrial campuses still left in Mumbai. Only the Godrej group’s Vikhroli campus can boast of a larger area.
The agenda attributed L&T’s change in stance to a changed “environment for the IT business, which is a fallout of global recession”, along with “uncertainty in?tax provisions”.
The firm’s IT subsidiary, L&T Infotech Ltd, had reported a 6.3% drop in revenue in the year ended 31 March, blaming it on falling global demand.
Tax experts agree that firms need to worry about the new tax regime that is being finalized and is expected to be imposed from 1 April.
“Companies which already have or were planning to set up SEZ units are now worried that the draft of new Direct Tax Code does not mention anything about tax holiday benefits for companies operating in SEZ units,” said Naveen Aggarwal, executive director at audit and consultancy firm KPMG.
Under current laws, developers of SEZ units are eligible for tax benefits up to 10 years, while business units operating from SEZs are eligible for 100% tax holiday for the first five years, and 50% for the next 10 years where the benefit during the last five years is subject to conditions. These provisions will not be applicable after 31 March.
IT firms have been trying to set up operations in SEZs as the tax holiday scheme for Software Technology Parks of India, introduced in 2000-01, will also expire on 31 March.
“The hope now is that the revised draft of the new tax code, expected in early June, will likely address the issue of tax holiday for business units in SEZs, which most experts believe is an oversight,” Aggarwal said.