EZ developers scramble to meet March 31 deadline

Special economic zone (SEZ) developers are seeing a rush of new firms willing to buy spaces to set up units in SEZs before March 31 to be eligible for tax exempt­ions under the SEZ Act. The revi­sed draft of direct tax code (DTC) proposes to do away with the 15-year tax exemption to SEZs coming up after March 2011.

Beginning January, SEZ developers started witnessing renewed interest in the SEZs, which had lost sheen due to economic slowdown and crashing of real estate prices. In an SEZ, space is leased out to companies to set up units inside a SEZ.

“We are talking to four to five companies at this point of time. Companies are willing to pay premium to buy space in a developed SEZ to be able to claim tax exemptions. However, proposal in the DTC regarding SEZ is a concern for new developers as many have already pumped in lot of money but they are still far from operation,” said Michael Holland, CEO, Assets Property, developer of Vrindavan Tech Village, an IT/ITES SEZ in Banaglore.

However, new proposals have caused worry to SEZ developers as they are not certain about what shape SEZ Act will take add what benefits will they get if tax exemptions in SEZs are abolished.

“Setting of units in SEZ makes sense for companies as they can buy space for almost 50 per cent lesser than in a commercial building. Plus they also have benefit of tax exemptions and good infrastructure inside a SEZ,” said developer of Bangalore based SEZ.

Ravi Rao, president, Prestige Group agrees. He said, “Till six months ago, not many companies were willing to book space in a SEZ or otherwise. Things are ch­anging now.” Under Section 10 AA of the Income Tax Act, SEZs are given 100 per cent tax exempt­ion for the first five years, 50 per cent for the next five years and 50 per cent of the ploughed back export profit for the remaining five years.

The discussion paper, which has been released for stakeholders' comments till the end of this month by the finance ministry, suggested that existing units and those which would be approved before March 31, 2011 would continue to enjoy the tax holiday according to the present norms.

Commerce ministry is miffed with new proposals regarding SE­Zs. A senior official in the comme­rce ministry said, “Government had promised certain benefits to the developers of the SEZs, they can’t take it away suddenly. It will lead loss of investor’s confidence.”


Financial Chronicle, New Delhi, 29-06-2010