The developers of special economic zones may not get tax benefits for the money spent on meeting the contiguity norms.
As a result, many multi-product SEZs which do not have contiguous land may face cost escalation. These include two zones being developed by Reliance Industries Ltd.
"The tax benefits will not be available when the SEZ developers build roads and underpasses to meet the contiguity norms. The Board of Approval has been given the powers to decide on imposing or relaxing the conditions related to contiguity on a case-to-case basis," said a commerce ministry official. This clause would apply to all existing and proposed SEZs.
The SEZ rules were revised in March to give the inter-ministerial board the powers to allow zones which did not have contiguous land. However, the board will give the go-ahead only if the developer builds adequate overbridges and underpasses to connect the divided plots.
In April, the board had approved the expansion of Reliance Jamnagar Infrastructure Ltd's petro-chemical SEZ spread over 733 hectares to include another 492 hectares.
The expansion was being hampered by roads and railway lines dividing the land. The company was asked to build railway overbridges, road and underpasses to link the two plots. It will, however, not get tax benefits on these measures.
The 1,250-hectare Navi Mumbai zone of Navi Mumbai SEZ Private Ltd, promoted by Reliance Industries Ltd, is also divided by a road and a railway line.
In the last board meeting on May 9, the department of revenue had objected to the measures proposed by the developer - like building of overbridges and underpasses - and had asked the company to submit their plans in a proper format. This issue may be discussed in the next board meeting on May 31.
The tax exemptions enjoyed by the developers include duty free procurement of goods for the development of SEZs, while the units in the zones enjoy full exemption of income tax for the first five years, followed by 50 per cent exemption for the next five years.
In the subsequent five years, 50 per cent income tax exemption is given on the export profit that is ploughed back. In addition, the developers get central sales tax and service tax exemptions.
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