NO
EXEMPTION FOR SEZ CORPORATIONS FROM FBT
Corporate entities
in the SEZ will have no exemption from the FBT although they
are exempt from several other central taxes and levies. The
recently passed SEZ Act 2005 does not provide the units in
such zones exemption from the levy introduced in Budget 2005-06.
As per the budget provisions, the tax has to be paid by all
business enterprises that employ at least one person and extends
any of the amenities or facilities that are considered as
fringe benefit. Developers of SEZ would also have to pay FBT
for facilities extended to employees even though they are
entitled to a 10-year tax holiday otherwise.
Finance ministry
officials said SEZ units and developers will have to pay the
tax as the levy is strictly on the employer for the benefits
extended to the employees and not on the unit. They pointed
out the SEZ Act provides the exemptions from central taxes
and levies such as dividend distribution tax, minimum alternate
tax as well as customs, excise and service tax on inputs specifically
to the unit. All units in the SEZ will have to pay 20%, 50
% or 100% tax as prescribed on benefits provided such as entertainment
expenses, hotel accommodation, club facilities, scholarships
and contribution to superannuating fund. The tax would increase
the cost of operations and could lower the competitiveness
of units located in SEZ as cost to the employer is the cost
to the unit, tax experts point out. Officials say employees
of a SEZ unit is not exempt from income tax, and benefits
enjoyed by the employee cannot be exempt from tax.
