Even as the finance ministry has proposed cancelling of tax concessions to contractors who undertake civil construction work in special economic zones, the commerce ministry is working on rules to provide tax exemption to sub-contractors for developing infrastructure in the zones.
The commerce ministry's new rules are likely to be issued in a week to ten days, a move that goes contrary to the Finance Bill, 2007, which proposes limiting tax concessions to only developers.
The amendment will be effective retrospectively, from April 1, 2000, and apply from assessment year 2000-2001.
However, the commerce ministry officials say that sub-contractors (small firms who carry out work like electrical wiring, fitting glass panels, water-proofing etc) should also get tax benefits.
Section 80-IA of the Income-Tax Act provides for a 10-year tax benefit to enterprises engaged in development of infrastructure facilities, industrial parks and SEZs.
"While formulating the SEZ rules, we missed out the point that developers will need to allot a part of the work to sub-contractors. For example, every developer cannot set up a pre-mix cement plant in the zone and needs to get it from the domestic tariff area. Now such activities will be eligible for exemptions," said a commerce ministry official.
The rules would need inter-ministerial consultations, he added.
The rules, officials say, will also allow developers to decide the kind of fencing that they want around the zones. Presently, the developer has to build a concrete wall or put up a barbed wire.
"The developers will have the independence to use a host of security technologies while raising the boundary walls," said an official.