The Prime Minister's Economic Advisory Council has recommended the imposition of a minimum alternative tax (MAT) of 10 per cent on industrial units in special economic zones (SEZs), as a compromise to end the spat between the ministries of commerce and finance, over sops to these tax free zones. The council, headed by noted economist and former Reserve Bank of In- dia (RBI) Governor C Rangara- jan has, however, shot down the proposal of the finance ministry to slap an export obligation of 51 per cent on such units.
"The EAC has recommended to the Prime Minister that there is no need to put a cap on these zones, rather the finance ministry should bring these units under MAT, which could be ad- justed for tax on sales in the domestic market," sources said.
MAT is an advance tax imposed on company profits that is adjusted against future tax liabilities of corporates who do not pay tax at present due to certain exemptions.
In Budget 2007, Finance Minister P Chidambaram had brought infotech units in Software Technology Parks (STPI) under MAT, for which the tax holiday has been extended to March 2010.
The council has also opposed any ceiling on the number of SEZs in the country It . has contended that "the area and the number of units in such SEZs were not too high when compared to the production in the Chinese special economic zones."
The finance ministry had earlier proposed to impose an export obligation on units in SEZs, which was strongly opposed by the commerce ministry It wanted . these units to export at least 51 per cent of their production to avail tax benefits.
According to SEZ rules, units in such zones have to be only net foreign exchange earners, i.e., each unit's exports should be more than its imports.
