New Delhi: The government on Thursday exempted units in special economic zones (SEZs) from paying service tax on services they avail of within the zone and on which tax will have to be paid according to Indian tax laws.
They will, however, continue to pay service tax on services availed outside the SEZ but can claim a refund on this.
The move is likely to benefit these units by improving their cash flow and liquidity.
The latest notification by the department of revenue amends a notification issued on 3 March which required SEZ units to claim refund for service tax paid for services availed either inside or outside the zone. The revenue department iterated that refund claims would be finalized within 30-45 days from the date of filing of a refund claim.
The change was welcomed by SEZ units. “It is a step in the right direction,” said L.B. Singhal, director general of Export Promotion Council for EoUs (export-oriented units) and SEZs, an industry body.
However, Singhal said the ideal situation would be to exempt service tax even for services consumed outside the SEZ. “The empowered group of ministers on SEZs, headed by then external affairs minister Pranab Mukherjee, had decided to keep the refund provision for monitoring purposes. After implementing the new provision for around six months, complete service tax exemption should be provided. This will reduce transaction cost and unnecessary paperwork,” he added.
Pratik Jain, executive director, KPMG, agreed: “It is a good move. It gives some relief to SEZ units and developers. However, there could be ambiguity regarding services consumed within or outside the SEZ. This may also conflict with the SEZ Act which clearly says that services used by SEZs should be exempted from paying service tax.”
India has approved the creation of 568 SEZs out of which 315 have been notified, which means units functioning in them are eligible for tax and other benefits. Merchandise exports from SEZs have increased from Rs66,638 crore in 2007-08 to Rs90,416 crore in 2008-09, a growth of 36%.