The FM has not reintroduced the tax holiday for the exporting software units operating as 100% Export Oriented Units, which was withdrawn from 1-4-2011. Neither has he removed the applicability of MAT for Units in the SEZ scheme, which again, was brought into effect from 1-4-2011. While there is a justification for not extending the tax holiday for STP Units under Sections 10A and 10B of the Income tax Act, 1961, given the fact that this scheme has been in vogue for over 10 years now, there is no justification in refusing to remove MAT on SEZ Units. That the Finance Ministry continues to disregard the supremacy of the Special Economic Zones Act, 2005 over the Income tax Act, is clear. Despite that, as per the SEZ Act, 2005, no tax can be levied on SEZ Units, the Government has brought the SEZ Units under the purview of MAT thro’ the back door, viz. the Income tax Act.
One of the major incentives available under the SEZ scheme has been the non-applicability of the MAT and Dividend Distribution Tax on SEZ Units. This has been undone by the Finance Ministry, in what could be seen as a typical case of ‘promissory estoppel’. With the introduction of MAT on SEZ units, it goes without saying that the SEZ scheme has lost its charm, a fact reinforced by the lack of interest in the SEZ projects post 1-4-2011.
After this sunset clause all SEZ’s and STPI units will loose it’s shine and they will be forced to pay normal tax in par with any other units.