29th January, 2016 (MAINS)


Q1. There is a clear acknowledgement that Special Economic Zones (SEZs) are a tool of industrial development, manufacturing and exports. Recognizing this potential, the whole instrumentality of SEZs requires augmentation. Discuss the issues plaguing the success of SEZs with respect to taxation, governing laws and administration. [12.5marks/2015/GS-3] 200 words.

Please write answer in the comments section.

  • Ashi Agarwal

    1.Businesses in SEZs were exempted from the minimum alternate tax (MAT) on book profits and developers were exempted from payment of the dividend distribution tax (DDT) under the original scheme.
    2.But from 2011-12, MAT exemptions for SEZ units and developers were withdrawn and DDT exemptions for developers were terminated. MAT was levied on book profits at the rate of 20%, while DDT was levied at 20% on dividends distributed to shareholders.
    3.As a result of this, these units find it rather discouraging to work in SEZs as compared to units in Domestic Tariff Area (DTA).
    4.Similarly, unpredictability of the tax regime has also impacted investments because predictability in taxation policies is a precondition for making the environment conducive for investment.
    5.Another hindrance is lack of policy at the state level. Despite Central Government´s SEZ Act, many state governments have not framed their own SEZ policies which makes the approval procedure for developers a difficult task.
    6.The development of SEZ requires huge tracts of contiguous land. Acquiring land is also one of the major hurdles in the growth of SEZs.
    7.Other major reasons for the SEZs languishing is the absence of external infrastructure support and deficiencies in the availability & quality of power.

    • http://shashidthakur.com/ Shashi Thakur

      good job. relevant points.

      • Ashi Agarwal

        Thank you.