As per the sunset clause, all SEZs that are operational after March 31, 2020 will not be given income tax exemptions.
Even as Indian IT companies are being lured by countries including Vietnam with zero or significantly lower tax rate (than in India) if they set up campus in their country, which some companies are seriously considering, the Indian government is not looking to extend the sunset clause that will come to an end on March 31, 2020.
This would bring an end to the tax benefits for Special Economic Zones that become operational beyond March 31 this year.
As per the sunset clause, all SEZs that are operational after March 31, 2020 will not be given income tax exemptions.
All those that get operational till March 31, 2020 get a phased tax holiday for 15 years on export income.
Speaking to The Indian Express, Revenue Secretary, Ministry of Finance, Ajay Bhushan Pandey, said that the sunset clause will not be extended and said: “If the sun has set, it has set.”
“Once a sunset is announced and that, too, well in advance, and if we are going for exemption-free regime, from the point of view of stability in taxation policy, I think if the sun has set, it has set,” said Pandey speaking at Idea Exchange at The Indian Express (detailed interview to be published on Sunday).
When asked if there was no question of extending the sunset clause, he said, “At least at the official level, No. I can speak for myself and it is the stated policy of the government.”
He further said that since the sunset clause was announced well in advance, these companies had a choice and they had to organise their affairs in a certain manner that any unit which is set up till March 2020, they will continue to get exemptions for 15 years.
While industry players have been arguing that the government needs to extend the sunset clause in current times when economic growth is low and the sector has the potential for big job creation, Pandey said, “I won’t buy this argument and if I buy these arguments then these exemptions will never go away. We now have a good regime where we have 15 per cent tax rate and we feel it is a good enough incentive.”
Earlier, a top official with a leading Indian software company said that his company is seriously considering to set up campus in Vietnam or any other country offering favourable tax treatment. “They are offering very favourable taxation treatment if we set up campus there. While we are seriously looking at the option, we will see if the Indian government extends the sunset clause that is coming to an end in March 2020,” said the official.
While IT companies say they are looking at other countries, analysts do not see it as a big threat.
“It is important to see what kind of skill set is available in Vietnam or other countries that may be offering low tax rates. For the IT sector, a large number of quality skilled labour holds the key and I don’t think Vietnam or some other country has enough of such talent,” said Pankaj Pandey, head of research at ICICI Securities.
A top official with a leading mutual fund said that everyone wants incentives to continue and the fact that some countries are offering attractive tax rates to Indian IT companies is a good negotiation chip for the industry players.
Earlier, in September, Finance Minister Nirmala Sitharaman announced a sharp cut in the corporate tax rate to 22 per cent from 30 per cent without availing exemptions. She also said that the tax rate for new manufacturing companies that start production before March 2023 and incorporated on or after October 1, 2019, would be down to 15 per cent from 25 per cent.