Left opposes incentives to SEZs

Contesting the commerce ministry's claim that the revenue loss from Special Economic Zones is notional, the Left parties have asked the government to reconsider the special fiscal provisions for such zones.

While customs and excise duty exemptions can be understood as measures to ensure price competitiveness of exports, the case for providing 100 per cent exemption from income tax on profits for the first five years and 50 per cent for the next five years is not persuasive, the Left parties said in a note submitted to the government on Thursday.

Such fiscal incentives for new units, if they are to be given at all, should not be for more than two years. Income tax concessions for more than two years should only be provided for the reinvested portion of profits, and that too for maximum five years.

Making a case for differential treatment of entrepreneurs and developers, the Left said that fiscal incentives for developers, if they have to be provided at all, should be separately specified and be considerably less than those provided to entrepreneurs.

The Left parties opposed exemptions unrelated to exports, like service tax exemption to developers, IT exemption to units in the International Financial Services Centre (IFSC) and Offshore Banking Units, and the Securities Transaction Tax exemption to non-residents entering through IFSC. They demanded that the UPA regime should either amend the rules imposing the granting of tax and duty concessions on state governments or compensate the latter for revenue loss. Granting of duty concessions to goods sold by a unit to the Domestic Tariff Area should not be permitted since such concessions are intended for exports only.

"In a context where subsidies on food, fuel and fertiliser are being whittled down and the social welfare schemes...either underfunded or abandoned...citing resource constraints, the justifiability of tax largesse to big business under the SEZ policy needs to be thoroughly debated," said the Left parties who will discuss this note with the government at the UPA-Left Coordination Committee meeting early next month.

The Left demanded that there should be no transfer of land ownership to private developers, who should take land on lease or develop infrastructure on BOT basis. There should be a ceiling on the maximum land area to be given for different classes of SEZs.

SEZs whose land area exceeds the specified ceiling should be developed by the State, which can undertake joint ventures.

The Left also demanded separate caps for the total number of multi-product and sector-specific SEZs. A cap on the number of IT SEZs should also be set keeping in mind the revenue considerations.

Demanding regulation of real estate development in SEZs, the note said that the processing area of SEZs should not be less than 50 per cent, and 25 per cent of the non-processing area should be dedicated for infrastructure development.

Cautioning against the SEZs becoming enclaves of speculative finance, the note said that there was no need for providing tax breaks for financial entities within such zones. SEZs should be built on non-agricultural land or otherwise farmers should be given compensation at the market price.

The Left note said that the data from the BIFR showed that recommendations for liquidation of 1,254 private sector units, 31 Central PSUs and 41 State PSUs had already been sent to the High Court. A fast track mechanism should be set up for unlocking the land of these closed units so that they could be made available for building SEZs or other industries.