Special economic zone (SEZ) developers are peeved over the continued uncertainty created by the

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direct tax code (DTC) drafts, released by the union finance ministry, over tax benefits prescribed by the SEZ Act.

They want the central government to retain the SEZ Act, as passed by the Parliament, as they fear linking it with the proposed DTC regime, to come into force from April 1 2011, will eventually dilute the prescribed tax benefits. The second draft of the DTC, released on June 15, 2010, limits benefits under income tax, minimum alternate tax (MAT) and dividend distribution tax to only those units that exist or come into existence in SEZs by March 31, 2011.

Following the footsteps of SEZ developers in Andhra Pradesh, who successfully got chief minister K Rosaiah to take up their cause with finance minister Pranab Mukherjee, their counterparts in Tamil Nadu have now petitioned chief minister M Karunanidhi to plead their case before the centre.

In a memorandum submitted to Karunanidhi, Tamil Nadu Association of SEZ Infrastructure Developers (Tasid) has requested him to take up the matter on a “very urgent basis” and suggest the centre “not to implement the provisions or incorporate any provisions that will be detrimental to the growth and sustenance of SEZs”.

It pointed out that the recession had already significantly impacted “investment interest” of foreign investors even as the DTC uncertainty over the past year too had played havoc. “Any more delay in not removing the DTC uncertainty will only lead to more and more loss of investments as also jobs, export revenue and forex earnings,” Tasid said in its submission.

“The SEZ Act was passed by Parliament to bring in stability and offer a firm commitment on certain benefits to both domestic and foreign investors to make India a global destination for manufacturing. Any attempts to tinker that commitment will impact the image of Brand India among global investing community,” Sunil Rallan, president, Tasid told Financial Chronicle.

“Our only request to the union government is to retain the SEZ Act in its present form and not to link it to the direct tax code. This will eventually lead to dilution of the SEZ benefits, thereby putting off prospective investors,” says NNR Sharavanan, vice president, Tasid.

Tamil Nadu and Andhra Pradesh are the two prominent states, besides Karnataka, Maharashtra and Gujarat that together account for a majority of notified SEZs in the country. Tamil Nadu alone has 57 SEZs, of which 20 are operational, with an additional six set to join the league by end of December this year.

Unlike most other states, state-owned entities like Elcot and Tidco are in the forefront of promoting SEZs in Tamil Nadu through the JV and public private partnership route. In fact, Elcot alone is in the process of promoting eight SEZs, of which six of them are in Tier II cities and it is likely to be impacted with the lack of assured tax benefits.

There are 574 formally approved SEZs across the country, of which 350 were notified as on February 26, 2010, and 111 were operational as on April 30. There are 2,761 units approved for operations in these SEZs as on December 31, 2009.

The notified SEZs had attracted investments to the tune of Rs 1,49,350.78 crore as on April 30, 2010. The investments in SEZs before the SEZ Act stood at a mere Rs 6,078 crore. Direct employment in notified SEZs after the Act stood at around 2.52 lakh people, as against employment to just 45,683 people before Parliament passed this Act.

Exports from the operational SEZs for the fiscal year 2008-09 was Rs 99,688 crore. This jumped to Rs 2,20,711 crore for fiscal 2009-10, an increase of over 121 per cent.