The finance ministry is likely to roll back a sunset clause of March 2009 under Section 10 A, providing tax holidays to manufacturing units in special economic zones, announced in the Budget.
In this regard, the Prime Minister's Office on Thursday called a meeting of officials from the commerce and finance ministries on Thursday. The Budget had proposed to insert a sunset clause as per which, no deduction under sub-section (1A) of Section 10A will be allowed to any undertaking, which begins to manufacture articles or computer software after March 31, 2009 in an SEZ.
Commerce and Industry Minister Kamal Nath protested strongly against the move in a letter to Prime Minister Manmohan Singh before his departure to Kenya for World Trade Organisation mini-ministerial.
Officials told Business Standard that the commerce and industry ministry was not consulted on the issue. Moreover, a sunset clause curtailing tax benefits was inserted even though a final view on the proposed SEZ Bill was still to be taken by the Cabinet, an official said.
"A Group of Ministers was set up to examine the SEZ law. The minutes of the GoM are yet to be considered by the Cabinet. Hence, the decision of inserting a sunset clause cannot be taken by the finance ministry unilaterally," an official said.
The ministry is also dissatisfied with the explanation of North Block that the sunset clause has been inserted to hasten investments in these zones.
As per the existing provisions, a unit in an SEZ, which begins to manufacture, produce articles or computer software after March 2002, is allowed a 100 per cent deduction of export profits for a period of five years and 50 per cent for the next two years followed by a 50 per cent deduction of export profits to a special reserve account for the subsequent three years.
The commerce ministry had proposed enhancing the tax holiday to a total of 20 years for SEZs in the Bill while Finance Minister P Chidambaram had mooted the idea that the present 10-year tax holiday be retained.
