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New Delhi, Feb. 12: Exporters are showing a marked aversion towards special economic zones because of uncertainties over tax exemptions.

The imposition of a minimum alternate tax in the last budget along with the proposals in the direct taxes code (DTC) have sown the seeds of doubt among them over the viability of SEZs.

SEZs contribute over Rs 3 lakh crore, or about 28 per cent to the country's total outbound shipments, and provide direct employment to over 7 lakh people.

Under the revised draft norms on DTC, which will replace the Income Tax Act of 1961 in the future, tax exemptions for SEZs will be confined to the existing units.

Under the SEZ Act, units get 100 per cent exemption on profits earned for the first five years, while developers get an exemption for 10 years. Additionally, units get a 50 per cent exemption for the next five years and another 50 per cent on reinvested profits in the following five years.

"The government promised us certain benefits and now we are on the verge of losing them. Exporters are now pulling out of SEZ projects as operating from other areas is more profitable. The incentives are all gone," Sanjay Budhia, chairman of the national committee on exports, Confederation of Indian Industry (CII), told The Telegraph.

Exporters from all over the country met last week to discuss these issues.

Last year, worried over the impact of global slowdown on exports, the commerce ministry had initiated an exercise to revitalise SEZs.

"Industry is concerned over the imposition of minimum alternate tax (MAT) of 18.5 per cent on the book profits of SEZ developers and units," Budhia said.
The imposition of MAT and dividend distribution tax on developers and MAT on units coupled to the DTC proposal to withdraw profit-linked deductions have led to a fall in investments in SEZs. There has also been a significant decline in new proposals and an increase in applications from companies to withdraw their projects.

Exporters want SEZ units to be treated on a par with units in the domestic tariff area (DTA). Unlike their counterparts in DTA, units in special economic zones do not get the benefits of duty drawback, focused product and focused market schemes.