Companies
sitting on the fence are trying to see if they can use the eight-month window
still available to set up units in special economic zones. Units have to come
up before March 31, 2011, to avail of income-tax concessions available for SEZ
units.
The second draft of the Direct Tax Code (DTC) has
proposed to do away with the tax sops for SEZs units unless these are
operational by this date. As a result, there is a spurt in queries, including
from countries like the UK and Australia, but investors are not sure if they
can have the units operational in eight months.

M S Jagan, consultant, Sri City Pvt Ltd, said,
“There’s a rush to take up space in the next six months. Developers are also
not sure if they would get customers after April.’’ Sri City is a multi-product
SEZ coming up in Andhra Pradesh, close to Chennai.
People trying to rush in include those trying to
shift from software technology parks to SEZs, or multinationals keen to set up
captive outsourcing units in India. Mid-size information technology (IT) firms
vying for captive BPO (business process outsourcing) businesses are also keen.
Others who want to move include companies who
have some exports but see this rising in future. ‘‘Once you have a unit, you
can expand it later. The expansion will be eligible for tax sops, but not new
units,’’ said Hemal Zobalia, executive director, KPMG. For an SEZ to be
operational, it must show some exports, said Sri City’s Jagan.
Tapan Sanghal, associate director,
PricewaterhouseCoopers, said companies which can demonstrate that they can be
operational in eight months are able to pull projects to India. But those who
feel they can’t are holding back.
Uncertain horizonTake a high-end walkie-talkie maker, which has
units in China and Malaysia and is keen set up a manufacturing unit in India,
investing $20 million. There’s no way he can be operational by March 2011.
‘‘Once things are clearer, he can decide. Today, the incentives given by the
SEZ Act are being taken away by the IT Act,’’ said an expert.
The uncertainty in policy environment is hurting
investments. Iffco, for instance, is promoting a large agro-processing zone in
Nellore in Andhra Pradesh, which will see an investment of over Rs 5,000 crore
spread across 2,700 acres. It has already invested around Rs 500 crore, but it
is unlikely to invest the rest if the tax sops are taken away.
Though there have been a spurt in queries, the
developers are not ready. Of 500 SEZs proposed, only 111 have come up. These,
too, are being developed in a phased manner. The developers are not sure if
they should go ahead and who will be the takers.
‘‘For developers, the changes are severe. Many
have spent hundreds of crore in acquiring land and are in the process of
developing. Some could finish development by March 2011, but what if there are
no takers? That is their biggest grievance,’’ said KPMG’s Zobalia. ‘‘Some
mid-way path has to be found for SEZs which have been approved and registered,
so that their money doesn’t go down the drain.’’
Sanghal said people who have their plans ready
and feel they can be operational in eight months want to move in quickly.
‘‘Unless there’s greater clarity on tax sops, not many would like to take a
risk. Investors want to be sure their investments are not jeopardised,’’ said
Sanghal.
There’s another problem for IT companies.
Henceforth, tax-saving concessions will be given only on investments, which are
not good news for the IT industry, as they have no investments. ‘‘The most SEZs
are only on IT, which is why the finance ministry wants to stop giving tax sops
to SEZs. But this will also affect the multi-product SEZ developers and units
there, who need tax sops,’’ said Jagan.
Source:
BS 27/7/10