IT & ITES News

Brownfield units in DESH likely to get 15% corporation tax benefit

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Brownfield units going for a certain level of capacity utilization may be able to avail the concessional 15% corporation tax rate under the revamped special economic zones, to be called development hubs (DHs).

While the current scheme is limited to new manufacturing units starting operations before March 2024, the Development of Enterprise and Service Hubs (DESH) Bill may expand this window to 2032 and also to existing units that increase capacity by 50% or reinvest 50% of their net worth. It is aimed improving per acre efficiency and production of land.

The department of commerce has also dropped a contentious “equalization levy” proposal that was aimed at creating a level playing field between units in these development hubs and those outside.

Besides, in a significant relief, existing SEZ units that became operational before April 2020 will continue to enjoy the remainder of their 15-year tax holiday.

The Bill is to be tabled in the ongoing monsoon session of Parliament.

The commerce department plans to implement the law by October, a senior government official said.

The new law aims to make the SEZ Act, enacted in 2006 to boost export and manufacturing, compliant with WTO norms.

A WTO dispute settlement panel in 2019 ruled that subsidies given to entities located in special trade zones violated the agreement on subsidies and countervailing measures. “In this bill, we are saying, this limited window to avail concessional tax should be enhanced for development hubs till 2032. We have proposed that the window should be available for new manufacturing units, and also for existing units where they increase capacity by 50% or reinvest 50% of their net worth.”

“We are a land-deficit country. Our land cost is very high and so is the time and cost for setting up a new plant. So we have said that those who are expanding capacity should also benefit. It will improve efficiency, and increase production per acre of land,” said the official.

He confirmed that the “equalization levy” proposal has been dropped from the final DESH Bill.

Currently, while newly incorporated manufacturing companies pay a corporation tax rate of 15%, the concessional rate is only available to units that start operations by March 2024. Other companies have to pay a tax rate of 22%.

In 2019, finance minister Nirmala Sitharaman slashed corporation tax rates to 22% from 30% for all companies and to 15% for new manufacturing units that start production before 31 March 2023.

That deadline was extended by a year to compensate for the lost pandemic years.  Besides, in order to provide ease of exit, the bill provides for floor-wise denotification of IT/ITeS SEZs.

Moreover, the representatives of Central government departments would be available on-site to facilitate clearances.

Queries emailed to the department of commerce on Sunday morning remained unanswered till press time.

It also provides for auto-renewal of licenses for developers and units, subject to conditions. The developers of the zones will get Infrastructure status, which will allow them to get easier credit at competitive rates.

Pratik Jain, partner, Price Waterhouse & Co LLP said, “There was some confusion on applicability of equalization levy on domestic clearances from the proposed hubs. If a decision is taken to do away with such a levy, it would further incentivize the businesses to consider moving to the hub.” Industry is now waiting for the draft rules which are expected to provide clarity on several nuances including transition mechanism, conditions to be imposed for industry to move to the hub, guidelines for work from home, sub-contracting to domestic area, computation of duties or levies upon exit and so on, he added.

 

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