ABSTRACT
Special Economic Zones (SEZs) are established to attract foreign investment in India and play a vital role in the country’s economic development. SEZs are treated as foreign territory for tax purposes and offer several tax benefits and other fiscal incentives (often known as ‘tax expenditures’) to domestic enterprises to set up a unit in SEZs. To stimulate the economic growth of the country, having a much-touted tax policy has led to a loss of government revenue by 3-5%[1]. From the stakeholder’s perspective, such a friendly business climate is usually seen as an expenditure for the development of SEZs, which is a necessary evil. Therefore, it would be imperative to say that tax incentives are a double-edged sword for SEZs. While they act as a magnet for foreign investment but also lead to potential damage to revenue generation. This demands a review of current tax policies to promote economic development while securing government revenue. The paper aims to analyze the fiscal issues and challenges posed to the government. Further, the paper intends to provide a balanced road map between tax expenditures and efficient tax policies, which will entail fiscal sustainability within the country.
Keywords: SEZs, tax incentives, loss of revenue generation, etc.
[1] Statement of Revenue of Tax incentives under the Central Tax System: Financial years 2020-21 and 2021-22.https://www.indiabudget.gov.in/doc/rec/annex7.pdf(last visited on 25th May, 2024)