Commerce Department to bat for sops in tax code.

The Economic Times dated 20-10-2009

The Commerce Department has decided to ask the Finance Ministry to retain the tax benefits available to Special Economic Zone (SEZ) units in the proposed direct tax code, as it fears changes in the tax regime could impair their investment flow.

The draft tax code, which seeks to simplify and rationalise the direct tax structure, has proposed the withdrawal of all exemptions to offset the flat 25% tax on corporate profits against the current 34%, including various cesses.

SEZ units enjoy tax rebate under Section 10AA, which gives them 100% tax exemption on export profits in the first five years of operation. For the next five years, units can enjoy 50% exemption while in the following five years, units get up to a 50% exemption on re-invested profits. SEZ developers, on the other hand, get 100% tax exemption on profits for any ten years in a block for the first 15 years.

"The draft direct tax code has not clarified in what manner SEZ units will be given incentives. The commerce department has decided to insist that for SEZ units, Section 10AA of the income tax act should continue to be applied," a Commerce Department official who did not wish to be named told ET.

SEZs have attracted more than Rs. 1,00,000 crore since the SEZ rules were enacted in February 2006. For developers, however, the going may be tougher as the draft tax code has clearly specified that tax relief will be limited to the recovery of capital and revenue expenditure of developers.

"We are also going to express our unhappiness with the provisions in the draft tax code for SEZ developers and ask them to change it. We are in consultations with the industry and would soon come up with our proposal," the official said.

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