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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/11540/9111.
    Keywords
    Regional Development Finance
    Public Scrutiny of City Finances
    Non-Bank Financial Institutions
    Local Government Finance
    Government Financial Institutions
    Foreign and Domestic Financing
    Financial Risk Management
    Assessing Corporate Governance
    Good Governance
    Governance Approach
    Urban Development Finance
    Trade Finance
    Small Business Finance
    Rural Finance
    Roundtable on International Trade and Finance
    Regional Development Finance
    Finance
    Public Finance
    Governance
    National Budget
    Budgetary Policy
    Educational Budget
    Public Financial Management
    Financial System
    Financial Statistics
    Public Accounting
    Business Financing
    Subsidies
    Social Equity
    Economic Equity
    Project Risks
    Project Impact
    Public Administration
    Corporations
    Taxation
    Public Debt
    Local Government
    Debt Management
    Corporate debt
    Taxation
    Public Accounting
    National Budget
    Municipal Bonds
    Local Government
    Local Taxes
    International Monetary Relations
    International Financial Market
    International Banking
    Central Banks
    Business Financing
    Financial Aspects
    Taxation
    Public Debt
    Local Government
    Debt Management
    Pension Funds
    Mutual Funds
    Social Equity
    Financial Aspects
    Fiscal Policy
    Investment Requirements
    Banks
    |Taxing power
    Tax administration and procedure
    Tax policy
    Effect of taxation on labor supply
    Decentralization in government
    Community power
    Corporate divestment
    Civil government
    Delegation of powers
    Equality
    Neighborhood government
    Subnational governments
    Delivery of government services
    Local taxation
    Options
    Government
    Local government
    Taxation
    Grants
    Loans
    Use tax
    Taxing power
    State of taxation
    Tax-sales
    Tax revenue estimating
    Tax planning
    Spendings tax
    Special assessments
    Tax administration and procedure
    Sales tax
    Real property and taxation
    Progressive taxation
    Effect of taxation on land use
    Effect of taxation on labor supply
    Intergovernmental tax relations
    Local taxation
    Options
    Government
    Local government
    Taxation
    Employee pension trusts
    Investment management
    Investments
    Multiemployer pension plans
    Keogh plans
    Individual retirement accounts
    Pension plans
    Employee pension trusts
    Pension trusts
    Accounts
    Savings
    Inheritance and transfer tax
    Trusts and trustees
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    Citable URI
    http://hdl.handle.net/11540/9111
    Metadata
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    Working_Paper_314.pdf (1.012Mb)
    Author
    Mukherjee, Arpita
    Bhardwaj, Bhavook
    Theme
    Finance
    Governance
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise