In a bid to encourage industry to continue under the special economic zones (SEZ) in the country, the commerce ministry, the nodal ministry for SEZ policy and management, has approached the finance ministry to extend the direct tax benefits for such zones. Currently, the SEZ policy has a sunset clause till March 31, 2020.

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Senior government officials told CNBC-TV18 that “the finance ministry is currently assessing the proposal since the revenue department is not in favour of extending the SEZ sunset clause.”

The revenue department is of the view that “the recent tax rate cuts provide enough relief on corporate tax and minimum alternate tax (MAT). With the end of the sunset clause, those under SEZs can shift to the new corporate tax regime to enjoy low-tax benefits.”

However, a final call on the SEZ direct tax benefits extension is yet to be taken and the officials said that it will be taken up once the revenue department begins the budget discussions.

Meanwhile, tax experts give a mixed opinion on this. Rakesh Nangia, Chairman, Nangia Andersen Consulting Pvt. Ltd says, “Motive behind establishment of SEZs was mainly to fuel rapid economic growth, stimulate employment, boost development of technologies and infrastructure and to attract foreign direct investment (FDI). SEZ plays a vital role in giving impetus to manufacturing. The government, to simplify the tax regime, did away with the tax incentives and exemption that led to unnecessary litigation. In this direction, sunset clause for tax benefit u/s 10AA for SEZs is set as April 2020.”

“Any tax incentive provided by the government lures taxpayers and plays a vital role in an investment decision. In view of the recent reduction of the corporate tax rate and reduction in MAT to 15 percent, tax arbitrage of SEZ has neutralised. Special impetus to manufacturing sector is needed to achieve the government’s ambitious target of increasing the share of manufacturing in the GDP and Make in India programme. Extension of SEZs’ sunset clause has to come with abolishment of MAT to SEZ units to give our economy the required boost,” Nangia added.

Rajiv Chugh, Tax Partner and National Leader, Policy Advisory and Speciality Services, EY India,

says the sunrise IT sector needs an urgent booster dose from policy makers to maintain its

double-digit growth. The growing trend to restrict outsourcing and look for less expensive economies like the Philippines, Mexico, Poland among others to outsource services requires the government to continue to give fiscal incentives by extending the tax holiday, not withstanding lowering of tax rates. The fact that over 100 SEZs are in the pipeline needs to be taken cognisant of.”

However, a tax expert who did not wish to be named owing to client confidentiality, said: “The extension will lead to people not shifting to the new corporate tax regime, which is against the government idea. No industry wants to give away tax benefits and move out of their comfort zone. Thus, this is the right time, to make them shift from the SEZ policy to the new tax regime.”