<div>In his budget speech, the Finance Minister had proposed to revive Special Economic Zones and to make them effective instruments of industrial production, economic growth, export promotion and employment generation. This statement was widely welcomed and seen as a positive statement of intent to revive developer and investor interest in Special Economic Zones. However, since details of the measures being introduced have not been announced yet, it is not clear what lies in store for Special Economic Zones in the future. One of the major changes the industry was expecting in SEZ policy was the removal or reduction of MAT (minimum alternative tax). <br /><br />The rollback or reduction of MAT, however, looks unlikely. This was indicated by the Finance Minister while answering a query on MAT for SEZs.In that response statement, it was mentioned that companies were making huge profits and distributing dividend to their shareholders but were not paying any income tax due to the large number of exemptions and deductions available under the Income-Tax Act. <br /><br />Accordingly, MAT was levied on all companies to address inequality in taxation of corporate taxpayers. The press release by Ministry of Finance on 18 July 2014, mentioned that the removal of MAT from SEZ developers and units had no justification vis-à-vis other sectors of economy which were liable to pay MAT. Further, MAT paid by the company can be carried forward for set-off against regular tax payable during the subsequent year(s), up-to ten assessment years when the regular tax payable under the normal provisions of the Income-tax Act is more than the computation provided under MAT. This implies that MAT is most likely to be retained for special economic zones. <br /><br />MAT has been levied on developers and units operating in SEZs with effect from 1 April, 2012. Special economic zone developers and units have to pay 18.5 per cent MAT on their book profits.<br />Tax sops, however, are not the only factor for revival of special economic zones. The government could also support in terms of infrastructure and consistency in application of the SEZ policy. In last two years both investors and developers interest dwindled due to uncertainties over many issues related to taxes and land acquisition policy. They have therefore opted to de-notify their SEZs. Once the land is de notified, the developer can either sell it or use it for any other purpose/development. <br /><br />SEZs can provide tremendous opportunity for growth but require a hassle free stable operating environment, apposite infrastructure and well defined policies for both developers and the companies to harness the full economic potential of this investment asset class.<br /><br /><strong>The author is Associate Director, Research, Colliers International</strong></div>
