Government on the MAT PDF Print E-mail
Monday, 14 March 2011 00:00
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If it wasn’t bad enough that the government has been speaking in different voices on issues like environment or the governance deficit, we now have the commerce secretary saying the government could even be dragged to court for its decision to levy a minimum alternate tax (MAT) on SEZs. The ministry of commerce is understandably upset with the budget proposal since it takes away a large part of the SEZ’s USP—since average tax levels are around 21-22% for non-SEZ units, the 18.5% proposed MAT on SEZs reduces the advantage considerably, the commerce secretary told journalists. What is surprising, however, is that the commerce secretary should voice his opposition so openly, since the Budget is a collective decision of the government. As for the specific assertion by the secretary, that the Finance Bill cannot over-ride the SEZ Act, this is based on an incomplete reading of the budget. The explanatory memorandum makes it clear that the MAT proposal will be incorporated in an amendment to the SEZ Act. So the question of the Finance Bill over-riding or not over-riding the SEZ Act doesn’t come into play.


Though the removal of exemptions is the way to go in general, the commerce secretary is correct when he says investors have invested large sums of money on the basis of the law that said there would be no taxes, so they have reason to be upset. Whether they go to court or not is something we’ll have to wait and see, but it does make you wonder about the kind of decision-making that is taking place. Just a few years ago, the government okayed the new SEZ Act, after being fully aware that experts were arguing tax exemptions would distort the playing field between SEZ and non-SEZ units, that few firms ever set up shop in a country because of tax breaks (it is the size of the home market, the lower labour costs and other efficiencies that attract them) alone. So if the government was aware of this in 2005, why did it go in for SEZs? Or is policy subject to the whims and fancies of the minister in charge—Kamal Nath was commerce minister when the policy was first legislated. If that’s so, it is a poor reflection on policy-making and all that goes into it.


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