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Ministries spar over potential removal of MAT

Tuesday, 17 June 2014 - 6:20am IST | Place: New Delhi | Agency: dna

PMO is trying to bring finance ministry on board to include MAT waiver in the forthcoming Budget

The Prime Minister's Office (PMO), which is aggressively pursuing the agenda for manufacturing growth in the country to revive the economy, will have to iron out the differences between two ministries which have locked horns over the Minimum Alternate Tax (MAT).

While finance ministry is not in favour of foregoing revenue at a time of fiscal crunch, commerce ministry is of the view that the gains will be immense given the revival of the Special Economic Zones (SEZ), which have been lying redundant. PMO is trying to bring finance ministry on board to include MAT waiver in the Budget.

A senior finance ministry official told dna, "The commerce ministry has sent a proposal for scrapping the 18.5% MAT and dividend distribution tax on SEZ developers. PMO has examined the proposal and is of the view that a fresh lease of life should be provided to the economic zones to provide fillip to manufacturing."

"However, the move has a huge implication in terms of revenue loss for the finance ministry, especially at a time when there already is so much fiscal burden," the official added. Top PMO officials have met the senior officials from both the ministries. More meetings are likely to follow on the matter.

Both dividend distribution tax (DDT) and MAT were extended to the SEZ developers by the then finance minister Pranab Mukherjee in 2012. MAT essentially ensures that no tax payer with higher income could use exemptions, incentives to avoid paying taxes.

Experts, however, agree that it is high time that MAT and DDT on SEZs go. "SEZs were conceptualised to boost investments in these regions, create jobs, develop infrastructure and enable growth of the local economy around the region. MAT and DDT exemption provided boost for the investments. After the tax sops were withdrawn, the investments dried up. Several other emerging countries, who have of late started providing benefits have weaned away investments from India," said Sachin Sandhir, MD, Royal Institute of Chartered Surveyors, RICS (South Asia) – a global organisation for professionals in real estate and construction.

"If the government reintroduces these incentives and new ones, it would help in boosting investor confidence, added Sandhir.

Others call for a sector-specific SEZ policy. "There is no doubt that MAT has to go. It is a depressor. Performance must be rewarded. Additional incentives must be extended in terms of direct tax or any other taxes for those units, which complete export obligations of 3 years. Quick disposal of service tax refund and making it hassle free. Current 2005 SEZ policy is drawn more towards manufacturing, it would be good to draw a separate policy for services industry since it's a big contributor to economic growth.," Gaurav Pandey, governing council member, Global Initiative for Restructuring Environment and management Girem -- a body working with local governments in the areas of infrastructure planning, growth and development.

Meanwhile, inconsistencies have marred India's SEZ story. The SEZ Act of 2005 came into force in 2006 and the government received a flurry of proposals. However, even as 566 SEZs have been notified since then, a mere 185 of them are in operation. SEZs have logged exports worth Rs 4.94 lakh crore in 2013-14, compared with Rs 22, 840 crore in 2005-06.

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