SEZs in inter-ministry row

The finance ministry has criticised the commerce ministry's proposal to introduce tax measures in the comprehensive legislation on special economic zones.

The finance ministry has said that it is yet to approve most of the tax relief proposals in the SEZ bill.

It has accused the commerce ministry of trying to get legislation passed through the backdoor by circumventing the objections raised by the ministry.

In its proposals for relief under direct tax, the commerce ministry has sought export status for supplies from domestic tariff area to SEZ units and those between SEZ units; re-investment allowance at a flat rate of 50 per cent of investment made out of profits of SEZ units; and export status under the Income Tax Act for goods and services admitted from DTA into SEZs for the development, operation and maintenance of these SEZs by developers among others.

Though the commerce ministry has claimed that these issues have been approved, the finance ministry denies it.

The finance ministry has also shot down a proposal for SEZ units to be charged income tax at a peak rate of 50 per cent.

Also, suggestions on reinvestment allowance and a measure to levy a 5 per cent income tax rate on offshore banking units are yet to be cleared.

The finance ministry has also said that a direct tax measure can only be introduced in Parliament through the Finance Bill and there were no other provisions in the Constitution which allow for any different treatment. Thus, the SEZ bill will be ultra vires.

In the amendments to the Exim Policy announced on March 31, Commerce Minister Arun Jaitely had said that he would focus on development of SEZs and the services sector to boost exports.

The minister had also referred to the introduction of a bill for SEZs that will bring together all issues related to the area under a single legislation.

However, the finance ministry said that the purpose can be achieved by bringing out a handbook on procedures and rules for SEZs.

The finance ministry has also objected to the proposed creation of a new authority under the commerce ministry to handle all search and seizure cases.

The revenue department, which is under the finance ministry, feels that such a measure will lead to the creation of dual authority.