For companies, setting up SEZs is no special priority

Blame withdrawal of tax breaks, red tape

For companies, setting up SEZs is no special priority

Many companies, which have been allotted land for setting up Special Econo­m­ic Zones (SEZs) in Bangalore in the last eight years, have stayed away from making the promised inves­t­ments.

Tardy clearan­ces, tedious paperwork and withdrawal of tax breaks are holding them back. 

Statistics available with the Karnataka Udyog Mitra (KUM)—the single-contact point for all investors looking to set up businesses in the State—suggest that at least 15 approved companies, which intended to start SEZs, have stayed away since 2006 when they were first given approvals for setting up these units.

According to KUM officials, the majority of companies which want to set up SEZ are from the IT sector. All these companies have seen government notification being issued approving their land acquisition. But the single most important thing holding them back is the withdrawal of tax breaks by the Union government. 

In 2003, the Centre gave tax breaks to IT companies for setting up units in SEZs. In Karnataka, companies were promised exemption from the Minimum Alternative Tax (MAT) and the Dividend Distribution Tax (DDT). Soon after this announcement, the land acquisition process began for 40 SEZ developers. Companies started applying for SEZ in 2005 and were expected to start operations by 2010. 

But in 2011, the UPA government withdrew exemption from the MAT and the DDT on the grounds that the tax breaks were “not proving to be useful”. The withdrawal meant companies needed to shell out 18.5 per cent of their profits as MAT and another 8 per cent as DDT. 

Hence, companies which were allotted land for IT SEZ in Bangalore and on its outskirts have not come back. Twenty-one more companies (including non-IT SEZ) went back on their commitment to set up SEZs in the State despite clearance of their land acquisition.

In all, only 25 out of the 61 SEZs have become operational so far. 

KUM officials say these “unfavourable” conditions stalled investments to the tune of about Rs 39,000 crore. But all hope is not lost as the NDA government is expected to revamp  the SEZ operations. Under a new policy on SEZs, the NDA government may waive MAT and DDT, besides offering new tax breaks. This policy is to be part of the NDA’s Foreign Trade Policy and is likely to be finalised by the end of August or first week of September. 

On its part, the Karnataka government has relaxed the norms for setting up an IT SEZ by issuing an order which stipulates that any company having one lakh sqr mtr or 10 sq ft of area can be designated an IT SEZ. Officials in the commerce and industry department say Karnataka can hope to get more investments in Bangalore if companies use this clause to set up an industry within the city limits on private land. Sources say Karnataka is also planning complete overhaul of government-run SEZs.

 These SEZs, including the ones set up by Keonics and the KIADB, have failed to attract potential investments due to their composition and lack of publicity. So, the department is planning to publicise the SEZs and attract firms to them. 

But from the perspective of the industry, the MAT and DDT issue is not only the one creating obstacles in setting up SEZs. There is also red tape. At a meeting in July, Wipro Ltd chairman Azim Premji had urged Chief Minister Siddaramaiah to ensure speedy paperwork from multiple departments. He had met the CM, seeking his intervention in Wipro’s Sarjapur SEZ which is to bring Rs 354 crore worth of investments. 

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