The Hindu : National : Scrap exemptions to SEZs: OECD

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Thursday, Jul 05, 2007
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Scrap exemptions to SEZs: OECD

Special Correspondent

NEW DELHI: The Organisation of Economic Cooperation and Development (OECD) is in agreement with the Union Finance Ministry that tax exemptions to units in Special Economic Zones (SEZs) are a drain on the country’s exchequer and should be scrapped.

According to the OECD Deputy Secretary-General, Pier Carlo Padoan, the Indian Government should have a re-look at the tax concessions extended to SEZs, export processing zones and software technology parks. “The work undertaken by OECD suggests that such schemes generate very little new investment and there are considerable advantages in ending such incentives,” Mr. Padoan said.

Distorting economy

The Finance Ministry had also opposed tax exemptions to SEZ units and developers while estimating that the revenue losses on account of such exemptions would cross the Rs. 100,000 crore mark over the next few years.

Accordingly, while favouring a ceiling on the total number of SEZs to be set up in the country, it is also engaged in an exercise to cut down some exemptions. Mr. Padoan, who was here to participate in the two-day international conference on tax that was jointly organised by the Finance Ministry, the OECD and the Asian Development Bank (ADB), pointed out that such tax exemption schemes had a tendency to distort the economy without resulting in any sustainable tax revenues.

Helpful at initial stage

“Our experience across different nations showed that such tax exemptions were helpful only at the initial stage of development, and considering India is already a mature economy, they are unlikely to achieve its objectives here,” he said.

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