Imposition of MAT on SEZs: Concerns and the Way Forward
Mukherjee, Arpita; Bhardwaj, Bhavook | February 2016
Abstract
A Special Economic Zone (SEZ) is a type of managed industrial cluster which focuses on exports and encourages the inflow of foreign direct investment (FDI) and technology. These “special” zones are given a range of fiscal and non-fiscal incentives, which are not available to firms located in the rest of the country. Fiscal incentives largely include tax concessions. While there can be arguments for or against giving fiscal incentives to an industrial cluster, in practice, a number of developing countries, which promote SEZs, provide tax incentives. Some of these incentives are actionable or even prohibited under the World Trade Organization’s (WTO) Subsidies and Countervailing Measures Agreement. Given this background, this paper focuses on one such direct tax incentive, namely, the exemption from minimum alternate tax (MAT), and the implication of its withdrawal on Indian SEZ developers and units.
Based on secondary data, the paper tries to examine if the withdrawal of the MAT exemption from 1 April, 2012, has adversely affected the performance of Indian SEZs. Based on a primary survey, it tries to understand the importance of direct tax benefits, including MAT exemption, for SEZ developers and units. The paper also examines the direct tax incentives given to SEZs across countries such as Bangladesh, Philippines, Republic of Korea, United Arab Emirates (Dubai) and Vietnam, with whom India competes to get FDI and technology. The paper concludes that all countries provide direct tax incentives to SEZs, and hence, if India wants to continue with the SEZ policy, it has to provide the direct tax incentives. However, such incentives are not unconditional and have to be phased out over time. The paper identifies the gaps in the design of direct tax incentives, focusing on the income tax and MAT exemptions. It makes policy recommendations on how to make the SEZ policy successful and an instrument of the “Make in India” Campaign.
Citation
Mukherjee, Arpita; Bhardwaj, Bhavook. 2016. Imposition of MAT on SEZs: Concerns and the Way Forward. © Indian Council for Research on International Economic Relations. http://hdl.handle.net/11540/6531.Keywords
Taxation
Business Financing
Investment Requirements
Capital Needs
Tax Incentives
Project Risks
Tariff agreements
Customs convetions
Import policy
Export policy
Trade Finance
Risk Financing
Regional Development Finance
Public Finance
Infrastructure Financing
Financing of Infrastructure
Financial Security
Financial Intermediation
Finance And Trade
Enterprise Financing
Trade Regulation
Trade Finance
Regional Trade Agreements
General Agreement On Tariffs And Trade
Investments
Finance
Market
Markets
Use tax
Tax administration and procedure
Taxing power
Effect of taxation
Business enterprises
Foreign trade and employment
Mentoring in business
Trade routes
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