New Delhi: The Prime Minister’s Economic Advisory Council has recommended imposition of 10% minimum alternative tax on industrial units in SEZs as a compromise to end the spat between the ministries of commerce and finance over sops to these tax free zones.
The council, headed by noted economist and former RBI governor C Rangarajan, has however shot down the proposal of the Finance Ministry to slap an export obligation of 51% on the units in SEZs.
“The EAC has recommended to the Prime Minister that there is no need to put a cap on these zones, rather Finance Ministry should bring units in these zones under MAT that could be adjusted for tax on sales in the domestic market,” official sources said.
MAT is an advance tax imposed on company profits that is adjusted against future tax liabilities of corporates that do not pay tax at present due to certain exemptions.
In 2007 budget, Finance Minister P Chidambaram had brought IT units in Software Technology Parks (STPI) under MAT, for which tax holiday has been extended to March 2010.
The council, which provides suggestions to Prime Minister Manmohan Singh on crucial economic issues like tackling inflation, has also opposed any ceiling on the number of SEZs in the country.
It has contended that “area and the number of units in the SEZs is not too high in comparison to the production in the Chinese special economic zones.”
The sources said earlier the Finance Ministry had proposed to impose an export obligation on SEZ units that was strongly opposed by the Commerce Ministry. It wanted that these units should export at least 51% of their production to avail tax benefits.
As per SEZ rules, units in such zones have to be only net foreign exchange earners. This means that each unit’s exports should be more than its imports.
Government has so far sanctioned about 450 SEZs, out of which less than 100 are operational. Commerce Minister Kamal Nath has said the government could review the SEZ Act, 2005 in near future.
The sources said the EAC recommendations could be looked into by the Empowered Group of Ministers headed by External Affairs Minister Pranab Mukherjee to take a final decision on the issue.