Impact of DTC on SEZ

Existing Provisions for SEZ Developers

1. Profit-based tax incentives – 10 year Tax Holiday
2. Tax benefits for Co-Developers
3. Exemption from MAT
4. Exemption from DDT
5. Similar benefits for Co-Developers

Impact under DTC

Profit-based tax incentives to be discontinued

Expenditure / Investment-based incentive scheme introduced
 Period consumed in recovering all capital and revenue expenditure
will akin to tax holiday for SEZ developers
Deductible expenditure covers Operating expenses; Permitted finance
charges; Expenditure on license charges, rental fees actually paid;
Expenditure on purchase, lease or rentals of land or land rights; Capital
expenditure; Expenditure incurred before commencement of business; and
Amount of negative profit computed for any financial year immediately
preceding the relevant financial year

issues
No reference to SEZ Act, 2005
Applicability to the “business of developing a SEZ”
 Developer / Co-developer not defined
 Does it cover all who are involved in the “business of developing a
SEZ”?
Transfer of Operation and Maintenance not covered
No exemption from MAT
No exemption from DDT
Anomaly on deductibility of expenditure on acquisition of land

Existing Provisions for SEZ Units

Profit-based tax incentives – 15 year Tax Holiday
 100% for First 5 years;
 50% for Next 5 years; and
 50% for Balance 5 years, subject to specified investments
Exemption from MAT
Impact under DTC
Export-based Incentives to be discontinued
Specific provisions enabling grand-fathering of benefits under DTC to be
introduced –
Opportunity to plan SEZ Unit set-up before DTC coming into effect

Issues
No exemption from MAT
No profit or investment based incentives for Units set-up post DTC
On developers
sEZ developers are exempted from customs/excise duties for development of SEZs for authorised
operations approved by the Board of Approvals; I-Tax exemption on income derived from the
business of development of SEZs in a block of 10 years in 15 years; exemption from MAT and
DDT.
provision for an investment-linked deduction for all SEZ developers notified on or after the
commencement of the DTC. Besides, it seeks to levy Minimum Alternate Tax (MAT) and
Dividend Distribution Tax (DDT) on SEZ developers.

On sez units