CHENNAI: Conflicting provisions of Central and States' law on approval of Special Economic Zones (SEZs) is proving a problem for developers of new zones.

Approval of SEZ status by the Central government required registration of land with the State government concerned, while the State authorities were not prepared to grant exemption from stamp duty for registration without Central approval of SEZ status, according to a presentation made by K.V.Madhan of Ernst & Young (E&Y) at a workshop organised by the Madras Chamber of Commerce and Industry (MCCI) here on Saturday.

It was only Andhra Pradesh which had helped solve this problem by providing for refund of stamp duty to approved SEZs. In the case of other States, there was a need for a dialogue between the Commerce Ministry and the States, Mr. Madhan added.

He pointed out that China gave land free of cost to units operating in SEZs, which at present accounted for more than 30 per cent of the country's gross domestic product (GDP). Tax relief given to developers of zones and industrial units in India only mitigated to a certain extent the high cost of land, Mr. Madhan said, while criticising media reports highly exaggerating the loss to the exchequer from the operation of SEZs.

Presentations made by other consultants from E & Y cautioned that tax holidays might lead to flight of units on the expiry of the relief, as had happened in China and Malaysia. A drafting error mentioning total turnover of the "assessee" instead of the unit or undertaking concerned was likely to pose a problem in claiming due tax relief on export profits, it was stated. Also, there was a contradiction in spirit between the income-tax law granting capital gains tax on sale and transfer plant and machinery from urban areas (Sec. 54 GA) and the SEZ rules prohibiting migration of units from the DTA or existing EoUs to SEZs, the consultants said.

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