Service tax exemption for SEZs

Delhi: The recent decision made by the finance ministry to allow an upfront service tax exemption for all Special Economic Zone (SEZ) units and developers would translate into an additional savings of Rs 1,500 crore annually for such units, as they would no longer be required to wait for refunds.

The service tax incidence or the tax paid on input services for SEZ units and developers is above Rs 8,000 crore annually. Although the input service taxes are to be nullified in reference to these enclaves covered under the SEZ policy, the turbid refund system has practically led to about twenty per cent of the claims getting indeterminately stuck with the authorities at any given time.

Even though the gain would be of only Rs 1,500 crore, the liquidity of the SEZ units and developers would improve even more substantially due to the new move, as the SEZs would not have to pay the taxes in the first place and then wait for refunds.

As per official sources, the problem of delayed and denied refunds has been occurring specially in the cases of IT SEZs. Petrochemical manufacturing zones and refineries along with large port SEZs would be amongst the other beneficiaries.

Recently, the revenue department permitted upfront exemption of service tax, education cess as well as secondary and higher education cess alike, to SEZ units and developers which have operations within such duty free enclaves as well as outside of it.

Antecedent to this, units such as these received tax refunds on only the taxes that they paid, subject to the rules of – ‘place of provision’ to ensure that tax-free services were availed only for export of services and goods and not for those sold within the domestic tariff area.

The only areas to have had enjoyed upfront exemption of service tax earlier were the performance-based services like cargo handling, repair of goods, warehousing and storage, technical testing and those pertaining to property like maintenance, construction and engineering services on which invoices cannot be fabricated.

Those having their operations based either inside or outside of SEZs can avail the benefits extended by the new rule.

The IT and ITeS based SEZs have been credited as the most prominent driving factors behind the growth of real estate sector in tier 1 cities across India. Localities situated in close proximity to IT and ITeS corridors have witnessed a sustainable increment in their respective real estate sectors. These corridors attract additional floating population which in turn results in development of infrastructure and ultimately better prices for realty.

With this new rule, such SEZs would be benefited and in turn could possibly result in additional hiring, ultimately sparking off a significant rising curve for both the demand and prices of the adjoining real estate pockets.