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    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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    Citable URI
    http://hdl.handle.net/11540/6531
    Metadata
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    Working_Paper_314.pdf (1.012Mb)
    Author
    Mukherjee, Arpita
    Bhardwaj, Bhavook
    Theme
    Finance
    Trade
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise