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
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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
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