Withdrawal of tax benefits from special economic zones (SEZs) would adversely impact India's exports and economic sentiments, Assocham today said.
"Developers have invested huge money in SEZs. If tax benefits are not given, there will be adverse impact on exports and economic sentiments," the chamber said.
It said that about Rs 30,000 crore worth of exposure that banks and financial institutions have given to SEZ projects under various stages of implementation may turn into non-performing assets.
The government has imposed 18.5 Minimum Alternate Tax (MAT) on the book profits of SEZ. The government has also imposed dividend distribution tax on the tax free enclaves.
Investors are also apprehensive about the new draft Direct Taxes Code (DTC).
According to the revised DTC draft, which will replace the Income Tax Act of 1961, tax exemptions for SEZs will be confined to the existing units.
Under the SEZ Act, units get 100% tax exemption on profits earned for the first five years, while developers get exemption for 10 years. Additionally, units get a 50% exemption for the next five years and another 50% exemption on re-invested profits in the following five years.
Assocham said that after the announcement of DTC, developers and financial investors have lost interest in SEZs.
It said that by increasing exports from the zones, the government can also lower trade deficit and reduce risk on account of foreign exchange volatility on the back of high crude oil prices and rising import bill.
It also called for speeding up consensus among various political parties so that issues like land acquisition and compensation can be sorted out to make passage for a new law.
"All stakeholders should be consulted so that more SEZs can come up to generate mass employment and boost exports,"it added.
Exports from SEZs increased by 43% to Rs 3,15,868 crore in 2010-11 over the same period previous fiscal. A total of 6.76 crore employment was also generated.
