Cos make a beeline for SEZs ahead of DTC 

SOME Indian companies are rushing to set up units in special economic zones after the draft direct tax code (DTC) proposed doing away with tax concessions for units which are not operational when the code comes into effect.
Real estate and SEZ developers across the country are reporting a surge in interest from companies in IT, engineering and other sectors who are keen on availing benefits under the SEZ.IT companies, who are already facing the prospect of losing tax benefits under the twodecade old Software Technology Parks Scheme (STPI),are among those showing interest.The demand for space within existing SEZs has doubled in the past few weeks ever since the DTC was released. Many SEZs are not fully occupied. Companies who want to avail tax benefits will have to set up units before March 31 next year, said Hemal Zovalia executive director tax and regulatory service KPMG India. The Draft Tax Code (DTC), which proposes to radically change Indias tax structure, has expressed its broad desire to do away with benefits linked to profits. Profit-linked deductions are distortionary in nature as they create an incentive to inflate profit as well as to transfer profits from a taxable entity to a non-taxable one, it says. It has proposed protecting the benefits already enjoyed by SEZ developers and called for a similar provision to protect exemption for units already operating in SEZs. The fact that it is completely silent on new units that could come up in SEZs has spurred companies into thinking that the latecomers will not get any benefits.
We are in close consultation with the concerned department and are studying the implication of the draft DTC. The ministry will take a call on the issue, said D K Mittal additional secretary commerce ministry. The ministry wants that incentives to developers and units in SEZs should continue at least till 2016. We need some amount of STPI and SEZ incentives to continue for three years. Our software exports are around $60 billion and the government needs to support smaller companies for competitiveness, said Ganesh Natarajan, member, Chairmens Council, Nasscom. Software lobby Nasscom will approach the government to continue tax benefits in SEZs.
According to the current policy, SEZ units get 100% income tax exemption on exports for the first five years and 50% for the next five years. They also get exemption on 50% of the ploughed back export profit for the next five years after the first decade of operation.

Economic Times, New Delhi, 08-07-2010