The government’s decision to defer the General Anti-Avoidance Rules (GAAR) till 2016 will give an added growth stimulus to the economy. In order to generate additional revenues, the government is going all out to woo foreign investors after their initial disenchantment over such regressive tax policies as GAAR. India’s image as a promising investment destination was also impacted. Shifting to a damage-control mode, the government introduced reforms like 51 per cent foreign direct investment in multi-brand retail and 49 per cent in aviation. However, there are certain other important issues that need to be tackled. Special Economic Zones (SEZs) were established with the purpose of bringing in foreign investments and improving export and manufacturing. For quite some time, SEZs lived up to their billing with foreign investors increasingly investing in SEZs because of certain tax benefits. SEZs were leading India’s charge in attracting foreign investments and establishing of manufacturing- and export-oriented units in India. But the Minimum Alternate Tax (MAT), which was introduced in the 2011 Budget and applied to units operating out of SEZs, has stifled SEZs’ growth. With MAT effectively taking away all the earlier promised tax benefits, investors don’t find SEZs a viable investment destination any more. Moreover, existing investors are either downscaling investment plans or retracting from SEZs. The government shouldn’t let such a vital investment-attracting tool go waste. MAT on SEZs needs to be possibly rolled back in order to revive SEZs.
Sonakshi Babbar, Jamshedpur
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