The finance ministry has shot down the commerce ministry’s proposal to withdraw the minimum alternate tax (MAT) and dividend distribution tax (DDT) on developers of special economic zones, saying that it would bleed the exchequer dry by Rs 15,000 crore every year.
Commerce secretary Rajeev Kher had, on July 10, written to revenue secretary Shaktikanta Das seeking withdrawal of the taxes as part of moves to restore investors’ confidence in developing SEZs. Kher argued that credits of MAT, imposed on SEZs in Budget FY12, were unworkable and it has “the unintended consequence of impairing capital formation in the economy, particularly SEZs given the high growth of capital formulation witnessed.”
Every SEZ developer is liable to pay MAT at the rate of 18.5 per cent plus applicable surcharge and cess on book profits. However, the revenue secretary, in his reply on August 11 said that MAT was introduced to address inequity in taxation of corporate taxpayers and to promote inter-se equity among them.
“A number of tax reform committees (Kelkar and Shome committees) and the Standing Committee on Finance have recommended the removal of all exemption and deductions,” the revenue secretary said adding that MAT seeks to recoup part of the loss in revenue collection on account of exemptions and tax incentives in the corporate sector. “The estimated revenue loss, if MAT is withdrawn from the SEZ units, is Rs 12,000 crore per annum,” he said.
On DDT, he said that as the tax is levied on a company which makes profits and distributes dividend to its shareholders, there is no justification of exempting the SEZ developers from its payment. “The removal of DDT may also result in revenue loss of around Rs 3,000 crore per annum. In the light of the above adverse revenue effect, it would not be feasible to accept the request,” Das said.