Cabinet to take up SEZ Bill

Differences ironed out, Proposed Bill to grant 15-year tax holiday

The differences on the Special Economic Zones (SEZs) Bill were ironed out today following a meeting of Prime Minister Manmohan Singh with Finance Minister P Chidambaram, Defence Minister Pranab Mukherjee and Commerce & Industry Minister Kamal Nath.

The Bill is slated to be discussed at the next Union Cabinet meeting.

Under the revised SEZ Bill, units and developers will get a tax holiday of 15 years, senior government officials told Business Standard.

Developers of SEZs would be required to set up the zones by 2014 and would get tax breaks upto 10 years within a block of 15 years. Units in the SEZs would get a 15 year tax holiday from the date of establishment of the unit in the zone, officials said.

There were differences between the commerce ministry and the finance ministry with regard to the duration of the tax holiday.

The SEZ Bill, prepared by the ministry of commerce and industry, had proposed a 20 year tax holiday with 100 per cent income tax exemption for SEZ units for the first five years of operation, 50 per cent exemption for the next five years and 50 per cent exemption on profits reinvested for the next 10 years.

The finance ministry, on the other hand, wanted to retain a 10-year tax holiday with 100 per cent exemption for five years, 50 per cent for the next two years and 50 per cent exemption on profits reinvested for the next three years.

Differences between the finance and commerce ministry on the issue of a common definition of 'manufacturing' under excise, income tax and export rules has also been sorted out.

"The definition proposed by the commerce ministry has by and large been accepted. All cases where there is an element of doubt regarding manufacturing would be referred to the Board of Approval," an official said.

The sunset clause of 2009 for the SEZ units proposed in the Finance Bill 2005-06 would also now automatically become invalid as terms laid out in the SEZ Bill would supersede the provision.

The Budget had proposed to insert a sunset clause as per which no deduction under sub-section (1A) of Section 10A would be allowed to any undertaking which begins to manufacture or produces articles or computer software after March 31, 2009 in an SEZ.

Differences with regard to the setting up of Overseas Banking Units (OBU) has also been ironed out.

Officials said the Bill contained sufficient safeguards to ensure that such units would be set up only with prior permission and as per terms and conditions laid out by the Reserve Bank of India.