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SEZ units may be heading for MAT finish

The finance ministry is not willing to give up its proposal of imposing minimum alternate tax (MAT) on SEZ units.

, ET Bureau|
Sep 03, 2008, 12.38 AM IST
NEW DELHI: The finance ministry is not willing to give up its proposal of imposing minimum alternate tax (MAT) on SEZ units. While the commerce department has argued such a tax would go against the promise of a five-year 100% tax exemption made to investors in the SEZ Act, the finance ministry is not convinced. The empowered group of ministers (EGoM) on SEZs, which could not take a decision on the issue at its meeting last month, will take up the issue again in its next meeting.

Speaking to ET, commerce department officials said the finance ministry was adamant about imposition of a 12.5% MAT on all SEZ units despite the fact that it would require an amendment to the SEZ Act. ���In the last meeting of the EGoM, the matter was debated extensively by all members. The finance ministry refused to give up the demand for a MAT despite a number of arguments put forward by the commerce department against it,��� an official said. The chairman of the EGoM on SEZs, external affairs minister Pranab Mukherjee, decided to defer the matter and take it up in the next meeting.

While a date for the next EGoM has not been fixed, sources said it could be held later this month.The finance ministry is pushing for imposition of MAT on SEZ units on the ground that the tax was devised for the purpose of taxing sectors that were not paying taxes on profit.

As per the existing Act, SEZ units that start manufacturing goods or providing services on or after April 1, 2005, will be eligible for a deduction of 100% of export profits for the first five years from the year in which such manufacture or provision of services begins. A deduction will be allowed for 50% of export profits for the next five years while for the following five years, units will get up to 50% deduction on reinvested profits.

The commerce department says imposition of MAT would amount to a breach of promise made to the SEZ investors. ���If the SEZ Act is amended, it will be a sad comment on the stability of the government policies,��� the official said.The finance ministry had imposed MAT on 100% export-oriented units last year despite similar arguments from the affected units.
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