Date:06/05/2007 URL: http://www.thehindu.com/2007/05/06/stories/2007050605341500.htm

Business

States refuse tax exemption to non-processing areas in SEZs

Special Correspondent

To exempt services consumed by the poor from tax

NEW DELHI: The Empowered Committee of State Finance Ministers on Value Added Tax (VAT) on Saturday said all States had opposed grant of any tax exemptions to non-processing areas in special economic zones (SEZs).

The decision comes close on the heels of communication sent by the Union Commernce Ministry to Sates to provide tax exemption to SEZs. Stating that such a move had revenue implications, the Empowered Committee felt that in non-processing zones of SEZs, no one should impose on States anything relating to State tax exemptions, the VAT panel Chairman and West Bengal Finance Minister, Asim Dasgupta, told newsmen here.

"In other words, we are against any state tax exemption in any non-processing part of SEZs,'' he said after the meeting of the VAT panel.

On whether the views of States are in conformity with the Centre's SEZ Act, Mr. Dasgupta said: "Yes, it is, but if it is not, we are communicating our views to the Central Government because it is the unanimous view of all States.'' Non-processing areas in the SEZs relate to those activities, which are not directly related to production of goods and services, like provision for housing, shopping areas, hospitals and other social infrastructure.

The VAT panel also decided to exempt services consumed by the poor like education and health services offered by government bodies and individual performance in cultural, education and sports field from the proposed service tax on 44 items. As part of the deal with State governments to cut the Central Sales Tax from four per cent to three per cent this year, the Centre had decided to give them power to impose tax on 44 items. "The exact details of the items, which would be exempted from this tax, would be known at the next meeting,'' Mr. Dasgupta said.

He expressed the hope that some of the 44 items would be taxed in the later part of this fiscal as they did not involve any Constitutional Amendment.

At present, only the Central Government can impose the service tax, but the Union Government can give this power to States without any amendment. However, in the first year, the Centre may collect taxes on behalf of States and disburse the proceedings to the States later.