New Delhi: The finance ministry asked its enforcement arms to investigate possible violations by entities operating in special economic zones (SEZs), while the commerce department wants more incentives for these export enclaves.
“The CBEC (Central Board of Excise and Customs) and CBDT (Central Board of Direct Taxes) were asked to furnish a report on the findings and views of the ministry of commerce on the violations notified to them against the units operating in the SEZs,” the finance ministry said in an internal note, reviewed by Mint. CBEC and CBDT function under the ministry of finance with investigation arms.
A study group constituted under CBEC cites, in an interim report, large-scale violations by SEZ units, a finance ministry official said. The group will soon submit a final report to finance minister Pranab Mukherjee, he added, declining to be identified.
“SEZ was brought in through a special Act of Parliament and offered tax benefits to developers. Restoring earlier commitments will encourage investors,” said Gaurav Karnik, tax partner at audit and consulting firm Ernst and Young. The “intention was good but the multi-sector and multi-service SEZ did not take off much and to that extent SEZ did not deliver much on what the government wanted.”
The finance ministry is keen to investigate reports of violations by units in SEZs.
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Mint’s Appu Esthose Suresh says the finance ministry has asked its law enforcement arms to investigate possible violations by entities operating in SEZs.
“Our investigations reveal that there is large-scale manipulation by SEZ units,” said a CBEC official directly involved with the study group. “Our field formations have reported SEZ units engaging in fake exports for meeting the minimum export commitment, organized tax evasion and there is evidence for routing of black money on a large scale as well as exploitation of various government schemes.”
The finance ministry asked the study group to look into employment generation and land usage in SEZs as well, he said.
“One of the purposes of the study group is to resolve the difference (with the department of commerce) for proper regulation of activities in respect of units operating in the SEZ(s),” said the finance ministry official cited earlier. “The report will be submitted to the Economic Intelligence Council for further decisions.”
The Economic Intelligence Council is headed by the finance minister. The commerce department and the finance ministry recently sparred over jurisdictional rights to SEZ ports and the issue was taken up with the Prime Minister’s Office.
The cumulative revenue loss between 2004-05 and 2009-10 because of the various concessions given to SEZs is estimated at Rs 1.67 trillion, the official cited in the first instance said.
“We need to have a realistic view of the SEZ model in India. CBEC has been asked to submit the report quickly so that before any major policy initiative in SEZ the government knows the actual position,” he said.
appu.s@livemint.com
