Benefits from SEZ far outweigh the perceived losses

Inspite of its objection to any more SEZ projects, the Parliamentary standing committee on SEZs has endorsed commerce ministry's views that SEZs will be beneficial for the economy on multiple fronts

Inspite of its objection to any more SEZ projects, the Parliamentary standing committee on SEZs has endorsed commerce ministry's views that SEZs will be beneficial for the economy on multiple fronts.

The PSC has noted that apart from generating a whopping Rs 1.5 lakh crore for India as indirect revenue, it will create jobs for as many as 5 lakh people directly and 15 lakh indirectly.

After FM's recent remarks that tax exemptions extened to SEZs will lead to revenue losses of over Rs 1.5lakh crore, the commerce ministry had said these projections were hypothetical and notional. In a note, the commerce ministry had said "on the contrary economic activities and employment generated in SEZs will far outwiegh the tax exemptions."

The projected revenue losses include over Rs 50,000 crore in direct taxes, about Rs 40,000 crore in indirect taxes and the remaining on raw material for export goods. "Since the raw material duty remission is provided for all exports, that loss can not be attributed to the SEZ policy," the commerce ministry note says.

The note adds that the direct tax loss projection is also based on hypothetical estimates. "This figure has been calculated for the period upto 2010. However, this exemption is applicable to EOUs and STP (software technology park) units also," the note says.

Further, the note adds that the direct and indirect tax income accruing to state and central governments, will be far higher than the estimated tax loss. "The benefits derived from multiplier effect of the investments and additional economic activity in the SEZs and the employment generated thus will outweigh the tax exemptions and losses on account of land acquisition. Stability in fiscal concession is essential to ensure credibility of government intentions," the note adds.

The ministry says that developers could only be incentivised to undertake SEZ projects only by offering significant tax concessions, as these projects entail much higher gestation periods. "This has to be treated as infrastructure activity, and not routine development. Unless suitable tax concessions are offered, no developer would come forward to invest over Rs 2000 crore in multi product SEZs without any return," says the note.