Union Budget 2019: Nasscom seeks new tax-friendly SEZ policy beyond 2020

IT body Nasscom has urged the government to continue the tax incentives to units in special economic zones beyond March 2020, saying that such a move will provide industry with certainty and enable them to invest in long-term strategy. Nasscom, in its pre-Budget recommendations submitted earlier this week, said IT-BPM industry contributes 6.6 per cent to the country's GDP, directly employs over 4.1 million skilled workforce and annually earns over USD 130 billion in foreign exchange.

"It would be useful to build on this strength by laying out a Special Economic Zones (SEZ) policy keeping the next 20 years in perspective. This would provide industry with certainty and enable them to invest in a long-term strategy," Nasscom Senior Director and Public Policy Head Ashish Aggarwal told PTI.

He said Nasscom has suggested that the new tax-friendly SEZ policy should retain existing tax benefits and provide concessional rate of 9 per cent Minimum Alternative Tax (MAT). Also, there should be exemption from dividend distribution tax (DDT). This would help in achieving the USD 5 trillion GDP milestone by 2024.

"A new SEZ policy, on the proposed lines, would help generate further employment and increase earnings in foreign exchange. Such a policy would be a net contributor to the Budget kitty and contribute to inclusive growth through economic growth in tier II cities," Aggarwal said adding that retaining the existing SEZ benefits will not result in any additional financial burden. 

He pointed out that growth of the sector was affected when MAT and DDT benefits were withdrawn from SEZs in 2011. 
"In the subsequent years, exports growth declined significantly to low single-digit rates, including negative growth in a year. Recently, the growth has again shown a promise to pick up...It is important that the hard earned gains are not lost, again," Aggarwal added.

He also pointed out that other countries provide significant tax incentives for exports and it is, therefore, important that India's SEZ policy is as attractive, if not more. Citing China, he said that the country offers an incentivised tax rate of 15 per cent to companies in its specified zones. Moreover, Indonesia, Mexico and South Korea offer reduction of up to 100 per cent in income tax rate to companies in special zones. 

Nasscom has also urged the government to incentivise R&D for IT companies to support development of more technologies and patent creation as well as provide an initial budget for co-funding talent development and re-skilling in IT services.

Besides, the industry body has suggested that long term capital gains arising from sale of shares of unlisted companies should be exempt from tax to encourage investment in startups, and that startups and small and medium enterprises with a turnover of less than Rs 50 crore be exempt from MAT.

It has also urged the government to introduce a point-based reward system for E-waste Recycling Credits for formal organizations to encourage them to channel their e-waste through government-approved recycling centres.

Nasscom has also pitched for providing co-funding incentives to metropolitan city governments to set up new recycling units through public-private partnerships with large e-waste companies.