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| SEZ-The Rip Off of the nation-by Rajib Gupta |
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The SEZ s are touted as
future engines of growth by establishing excellence zones but if you closely
examine the developers/SEZ units profile then it is self evident that three
things are imminent: 1. Land Grabbing at throw away prices. 2. Tax
exemptions exploitation. 3. Huge downward impact on Tax : GDP ratio & the
common man has to pay the price of it.
If these zones are excellence
are even made then this will be costly exhibition pieces (like Shanghai) but
not the engines of growth. The underdeveloped environment surrounding these
zones will drag down these zones in time to come. Advanced infrastructure
will clash with Indian realities. (JNPT port is a case in point-How we plan
& implement). The differentials will exacerbate inequities & create very
serious problems for the domestic tariff units. This is unsustainable. The
public governance has to improve to deliver desirable outcomes & there is no
semblance of this in SEZ scheme.
May be the GDP figures will
show growth because of the SEZ & create a lot of Buzz & talking points but
the real India will be withering under the load of the SEZ s. There may be
more money in the hands of the people but then that will not be enough to
secure good education for their children.
Exemptions from all taxes &
duties are made available.
All these exemptions create
enabling environment & puts Indian manufacturers at par with any nation. No
issues.
In addition to all the
valid exemptions, IT exemption is allowed, which is subsidy & keeps exports
subsidy dependent & perpetuates inefficiency. The exporters remain
inefficient so that subsidies continue
If Income Tax exemption is
actionable subsidy then why it should be given & risk taken. The DGFT is
reportedly concerned with saving Advance Authorization scheme but ready to
jeopardize the SEZ scheme, WHY !!!
Without nett additionality in
investments & blanket tax exemptions & huge actual revenue losses by way of
income tax waiver, SEZ s can only be misutilized & will not be able to push
exports in a big way.
The FTWZ units can shift tax
base by over invoicing/under invoicing from DTA to SEZ unit. They can also
do circular trading to walk away with advantages at the cost of the
exchequer.
Proportion of clearances in
Customs with exemption benefit in relation to total clearances has gone up
substantially in spite of the fact that duties have gone down substantially.
If IT exemptions are deemed
necessary to boost exports then why they are withdrawn in respect of the DTA
exporters. They have many disadvantages vis a vis SEZ units & require that
to survive.
Why the present developers did
not rush to develop EPZ s earlier.
Is creating cyber coolies
progress for the nation???
Why the whole country should
pay taxes for the benefit of select few!!!
The tax rebates in respect of
exports (mainly) is around 16572 crores already & with the new SEZ s, it
would be mind boggling.
Tax rebate for investment in
specified savings instruments is Rs.6568 Crores & the FM wants to bring EET
regime on this. WHY & how they should be made to bear the brunt of SEZ like
schemes. The tax rebate for Senior citizens & women are 1446 & 2121 Crores
only then why these should not be rationalized so that there is more money
in the hands of the Aam aadmi & all inclusive growth is ensured.
In the name of Export
Promotion anything & everything has been done. Target Plus scheme benefited
a select few to the extent of Rs.10000 Crores.
5 Biggest IT companies get
away with more than 1000 Crores IT exemption per year. They have been
getting IT exemption for more than 10 years. All these companies have more
than 500 Crores in their balance sheets through IT exemption already. Still
these companies want to extend their IT holidays by moving to SEZ s.
The IT exemptions have made
the owners filthy rich because there is no tax on dividends. The General
reserves have been capitalized by issuance of liberal bonus shares serving
their own benefits.
There is hardly any physical
exports in Software/BPO industry therefore it is best suited for laundering
of ill gotten wealth; Circular trading can be another serious problem.
People in the know say that the bureaucrats; politicians & industrialists
are in favour of these sops as they all have a vested interest.
A labourer lifting gunny bags
in FCI godowns & who does overtime & person earning Rs.3 Lakhs in Mumbai
with a family of 4 has to pay income tax but these businesses who make huge
profits need not pay income Tax!!!
If SEZ s can be the real
engines of growth then why the existing SEZ s are failing to showcase the
future success. Just the name change cannot serve any purpose. Is it that
the government is a miserable failure & cannot ensure success.
When the best enabling
environment to ensure profitability of the SEZ s is made available by giving
all possible exemption then why SEZ income should be tax exempt. This tax
exemption can be as high as 300-500% of effective rate of duty.
If profits are earned by SEZ
unit or by domestic tariff area units then why they should be treated
differently under the IT law. The colour or treatment of profit does not
depend on how it is earned. An inequitable treatment of income is
detrimental & favours the rich & permits them the benefit of rent seeking.
Why the domestic tariff units
(small & Medium enterprises) specifically be fleeced through the high
incidence of taxation & denied legitimate growth when they suffer from
various disadvantages.
If the SEZ s are meant to
bring in all inclusive growth then they should pay taxes & make a positive
contribution to the growth of the economy.
Industry leaders such as Mr.
Narayanmurthy & Mr. Nilenkani are on record several years ago saying that
even software industry needs to pay taxes.
Reduction of tariffs is a
compulsion. Several categories of supplies from SEZ to DTA are treated as
Exports. Therefore profits from DTA can be orchestrated by circular trading
linked to exports by the same group companies & escape taxation.
If SEZ s are the real engines
of growth & they will deliver the huge advantages to the macro economy then
why the incumbents are merely shifting production bases.
Why there is no condition in
the SEZ law that even after the tax exemption periods are over, the
incumbents will continue to remain SEZ units & pay taxes. Why the law says
that as soon as the benefits are over, they can opt to move out. Does this
not point an invitation to rip off.
If you will see the units
getting into the SEZ s then you will realize that most of them had their EPZ
units or 100% EOU & just to extend their tax holiday, they are coming to the
SEZ s.
The Petrochemicals SEZ of the
king will wipe out the petrochemicals PSU s & then one day these PSU s will
go to the king. Already, the losses of petrochemical units are mounting.
There is jugglery possible between the DTA & the SEZ unit. The various
expense ratios (excluding raw materials etc. & capital goods) for the
domestic unit should be compared with SEZ unit ratios if there are group
companies.
Are we trying to create one
king in the industry, which will then govern the nation in a much more
derogatory way. Where is the place for Aam Adami in this scheme of things!!!
When the entry in SEZ
is now being restricted by the government of the day then why the king of
the Indian industry be allowed to float several SEZ s. Is there only one
MIDAS ???
In Haryana, the farmers are
complaining that their livelihood has been taken away & they are paid paltry
sum. The Income tax law or the intention of the SEZ policy is that it would
entail additional investments, additional production capacities & additional
exports i.e. incremental approach is the key. However, there is no provision
in the law, which ensures & implements this!!! If this is to be implement
then the IT law should specifically spell this out.
The Income Tax act says that
the SEZ unit should not be set up on the basis of relocation, re-organizing
of business, splitting up of business etc. however, the SEZ Act does not
spell this out.
The IT exemption to Free
Trading & Warehousing Zone is touted by the Ministry of Commerce & Industry
as available & accepted by the parliament but the Ministry of Finance
neither accepts this nor there is provision in the IT law. The issue is
headed for courts like many other MOC & I Export promotion schemes.
The same kind of benefits are
available in Uttranchal & there is no condition to export but then there is
no mad rush there because land grabbing is not possible.
Why the income from
entertainment facilities should remain tax exempt. The utilization of these
facilities have to be by citizens of this country therefore how location
alone can put them at a different pedestal.
As on today, the processing
area is reduced to 35%. Is it not too low in relation to the sops being made
available & in terms of total acquisition & profitability ratios.
With the reduction in import
duties & the Basic Customs duty destined to reach 5%, the SEZ will wipe away
the Small & medium enterprises. The incidence of exemptions will far exceed
the duty protection.
The Value addition
requirement being just positive & that too in terms of foreign exchange &
cumulatively over a period of 5 years, Screw driver technology & low value
addition products will create serious challenge for domestic tariff area
units.
Power units can be
established in SEZ s. The power units can sell power to DTA by just paying
duties on consumables therefore SEZ units can be a big threat to domestic
power producing companies because of all the other advantages showered on
them.
The Hire & Fire policy needs
to be implemented for mutual benefit. How will this be ensured by the
Development Commissioners of the Zones???
The Development Commissioners
of the zone are made omnipotent & superheroes-Can they deliver!!!
Who & how will it be ensured
that the SEZ will all their advantages will not create distortions in hiring
of human resources & create serious problems for SME s working with the
inefficiency of the systems???
Free Warehousing & Trading
units IT exemption is in jeopardy. How MOC & I gets even with MOF needs to
be seen.
DEPB is a subsidy & this
subsidy is allowed to be claimed by the SEZ unit. If India is the most
competitive supply source (like in case of bulk drugs) then huge leakages
are in the offing. Same applies to leather, cotton fabrics etc.
If the intention of the policy
is to create additional capacity, there is no reason to permit 2nd hand
machines from DTA to be shifted without paying the applicable duties. This
has been introduced for the first time. The smart ones will use this route
to keep the Cenvat credit & shift the 2nd hand
machines to SEZ. There is no law to weed out this problem.
All types of units cannot be in
SEZ. The 100% EOU are doing the same then why & how there can be a
distinction & discrimination between the two.
The IT laws talk in respect of
an industrial undertaking then how a unit establishment can ensure extension
of SEZ units. The undertaking is allowed 10 years & not the individual unit
for the tax sops.
If prt production but total
production processes are contracted to the DTA unit then how & why this
should be treated as manufacturing exports of SEZ & allowed applicable
entitlements.
The penal action only comes
into action if positive NFE is not achieved over a period of 5 years.
Effectively, this means that exports have to CIF value of total imports +
US$ 1 only. This effectively means free hand & no respect for economic value
addition concept of business.
When the SEZ unit supplies to
SEZ unit, the invoice value will be without reduction of DEPB amount if the
SEZ unit has to claim DEPB. Thus DEPB is allowed on the DEPB amount. Really
ingenuity of the policy makers for padding the benefits.
If goods are taken on loan
basis from your DTA unit their value will not affect the SEZ unit & thus in
case of trouble in NFE, you can use this as an escape route.
Is it a rip off or a sell off
for the advantage of select few!!!
IT exemption needs to be
moderated because this is the only positive contribution they can make.
By Rajib Gupta
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