Representations to roll back the Minimum Alternate Tax (MAT) on SEZ developers and units and the Dividend Distribution Tax (DDT) on SEZ developers imposed by the Finance Act, 2011, are like flogging a dead horse. The flogging, though, needs to continue, since MAT and DDT on SEZ stakeholders sent shock waves across the Industry. These introductions have set back development plans of several SEZs around the country whose business plans were built around these tax assumptions. Evidently, several developers even decided to roll back and went about de-notifying zones. These measures impacted the demand-supply balance with prospective units having to go back on plans and revoke deals to take space in SEZs.
Given this state of affairs, any further tinkering of Sections 80 IAB and 10AA will only aggravate the woes and gravely impact the trust quotient that the government has lost by effectively going back on what the SEZ industry feels was a long-term commitment on fiscal incentives. The SME sector users in particular are hit hard by the imposition of taxes, as that has directly hit the bottom line, thereby impacting the already thinning margins across industries.
In fact, the existing law needs clarification. Lease income is typically the primary source of income for SEZ developers that should be eligible for tax deduction under Section 80 IAB. The extant tax jurisprudence suggests that income from property is to be classified under the head “Income from House Property”. That being the case, lease income would not be classified as business income and would, therefore, not be eligible for benefit under Section 80 IAB. If that is the position, how would a developer, whose primary source is earning income from leased SEZ property, ever be able to claim benefits under Section 80 IAB? This anomaly is clearly unintended and abets in the tax authorities denying legitimate deduction. It’s, therefore, time for some clarity and stability, so the finance ministry would do well in not tinkering with the law now – the infamous Direct Taxes Code Bill anyway looms large like the Damocles sword!
Vikram Bapat
Executive Director (Tax & Regulatory Services), PwC India
The views expressed here are personal
