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Japan's leading drugmaker Eisai Co Ltd is the latest among companies seeking exemption from minimum alternate tax (MAT) for facilities located in special economic zones (SEZs).
In a recent letter addressed to Prime Minister Manmohan Singh, Eisai has said the sudden imposition of MAT on SEZ units has affected the company's financials. The move also impacts its programme to supply certain free medicines to a public health programme run by the World Health Organisation (WHO).
"The sudden change in tax policy has not only affected Eisai financially; it has also jeopardised our global commitment to provide free of cost diethylcarbamazine tablets being produced at our Vizag plant, for use in a WHO programme to eliminate lymphatic filiarisis," the letter, signed by Eisai Co's President and Chief Executive Haruo Naito, said.
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Business Standard has reviewed the letter, which is also copied to Minister for External Affairs Salman Khurshid.
The proposal to impose 18.5 per cent MAT on the profits of both, SEZ developers and facilities located in these regions was announced by the then finance minister Pranab Mukherjee while presenting the budget for 2011-2012. It came into effect from April 2012 amidst severe protest from SEZ developers and units.
Prior to this, SEZ developers and units were exempted from MAT by the SEZ Act of 2005. Even as recently as last year, the Karnataka High Court upheld the government's decision to impose MAT, brushing aside petitions filed by many domestic companies such as MindTree, Biocon, Opto Circuits, Opto Infrastructure and Primal Projects.
Eisai has yet again raised concerns, saying the MAT imposition on the units "set up on the basis of the promised tax regime" is contrary to "the assurances provided" in the investment promotion measures announced earlier by the government.
Naito pointed out in the letter that Eisai, which invested $50 million in setting up a drug manufacturing facility in Vishakapatanam in 2009, established the facility as a base for global supply. "The investment was based on the assumption that MAT would not be levied on such units. The imposition of MAT…therefore came as a surprise to us," the letter to the PM said, seeking a resolution in the interest of "economic cooperation" between India and Japan.
However, senior officials in the government brushed aside the possibility of a review, citing the HC's order. "The government was well within its rights while withdrawing the MAT exemption," a finance ministry official pointed out. He added the withdrawal of exemption in SEZs had mainly affected domestic facilities and hardly five per cent of the investors were foreign companies. The official said the ministry never made a promise that the exemption was permanent.
However, foreign investors have been raising the issue during several international meets as well as bilateral talks.
The issue was also taken up by Japan's foreign minister Fumio Kishida during his meeting with Khurshid in New Delhi last November.
The finance ministry official also said the ministry had received several requests to review the move, since MAT exemption to SEZs was withdrawn in 2011.
