'DTC Bill a dampener, but SEZs will retain sheen'

Special economic zones may have lost some of their sheen on account of the proposed withdrawal of income tax sops in the Direct Taxes Code Bill, but developer Adani Group feels the zones are still lucrative enough to attract investment.

"Growth will definitely be there, you will see units coming in," said Unmesh Abhyankar, the Chief Operating Officer of Mundra Port & SEZ Ltd, the Adani Group firm overseeing the company's private port and SEZ at Mundra, in Gujarat.

However, he acknowledged that the company has not seen companies line up as fast as it expected to establish new units within the multi-product SEZ.

"Companies did not come as fast as we expected," he said, adding that the global economic turbulence was the main reason for many companies putting their SEZ projects on the backburner.

As per the SEZ Act, 2005, and SEZ Rules, 2006, SEZ units are entitled to exemption from duty of customs and excise, exemption from service tax and VAT, exemption from stamp duty and registration fees and exemption from electricity duty, besides income tax exemption on export profits.

However, in the latest draft of the proposed Direct Taxes Code Bill, the government has introduced a sunset clause for withdrawal of the income tax exemptions in March, 2014.

The proposed deadline for restricting income tax exemptions to SEZs and units has already motivated several developers that had secured approvals for implementing multi- crore projects to abandon their plans and surrender their projects to the government.

In this regard, Abhyankar indicated that the Direct Taxes Code Bill has certainly reduced the attractiveness of SEZs on account of the removal of income tax incentives.

"If we add any cost element in the form of the DTC, or any other way, it becomes difficult to do business," he said.

Nevertheless, Abhyankar remained upbeat about the prospects for SEZs attracting big ticket investments in future, given that the sops were not limited to income tax.

He pointed out that one of the major benefits of setting up shop in a SEZ was the ready availability of infrastructure and land.

"Once the initial infrastructure is in place, the rest will automatically become easier," the MPSEZL COO said. Mundra SEZ Joint Development Commissioner B Pattanaik also scoffed at the assumption that SEZ units would not continue to enjoy an advantage over units in Direct Tariff Areas.

"The DTC Bill is a dampener, but SEZs retain their benefits... It is a bouquet of benefits not limited to income tax," he said.

Pattanaik asserted that the biggest benefit of SEZs was the support extended by the government of India to the export-oriented zones.

He highlighted data showing how exports from MPSEZL grew from a mere Rs 8.53 crore (Rs 85.3 million) in 2006-07 to Rs 431.59 crore (Rs 4.31 billion) in 2007-08, Rs 768.44 crore (Rs 7.68 billion) in 2008-09 and Rs 1,284.49 crore (Rs 12.84 billion) in 2009-10.

During the April-September, 2010-11, period, exports from MPSEZL were valued at Rs 619.1 crore (Rs 6.19 billion).

Mundra Port & SEZ Ltd was originally approved by the board of approval, the nodal body vested with the power of clearing SEZ proposals by the government, under the foreign trade policy in 2004 and was notified in the same year.

It is the largest operational private SEZ so far in the country, with an area of 6,472.86 hectares. In addition to a functional port, the SEZ includes a railhead, airport and power plant.

A total of 21 units have been approved for conducting operations in the Mundra SEZ.

Out of these, three are involved in trading fuel oil, high speed diesel and food and beverage products and 15 are manufacturing units making turbines, boilers, heat exchangers, chemicals, textiles and packaging.

Another three units are engaged in warehousing and other services areas.

Out of these 21 units, nine have already commenced operations.