Special Economic Zones - whose nightmare ?

China, India. They are the world’s top two fastest growing economy. Ironically that’s the only similarity to be stated for the two when we talk of their economy. Rest is plethora of contrast. One of this is the opinion that everything happens in China with ‘top down’ approach and in India with ‘bottom up’. The government decides what has to happen and it gets swiftly done in China. In India, the demand comes from the people, who after years or turpitude from governments force them to act.

The ‘bottom up’ approach of India is considered most of the times for delays in accepting any proposal and implementing it. To make it up, they say this model (which can be termed as synergistic combination of ‘red herrings’) has more stability. In India the proponents of red herrings are galore. Political parties, committees, statutory bodies, commissions, newspapers with their own ideological tilt, columnists, members of commissions cum columnists, industrialist(secretly craving for politics), etc they all try to put their own agenda in anything good or bad that is proposed. I really don’t think we can afford all this for stability. Case in the point – ‘Special Economic Zones' (SEZs).

SEZs are any earmarked territory, having privileged set of rules for bureaucracy, customs and taxations. Much like Ayn Rand dream come true. The prevalent rules of country are not applied there. The entities in SEZ are given tax holidays. Obviously they become hotbed of economic activity. The present impetus in creation of SEZs and further relaxation of rules is due to Chinese influence. The huge FDI which China attracts is attributed to its numerous SEZs. India hopes to improve its pathetic FDI with the help of these SEZs.

Now true to Indian model we have opinions of every hues vying for attention. One of them is that creation of SEZs will lead to ‘loss of tax revenue’. This was put forward by a leading financial columnist of India terming it as “nightmare of any Finance Minister”.

I don’t agree to it. This is the classic example of myopic mindset. I agree that business entities in SEZs don’t have to pay tax for significant period but what is the aim of the tax collected by government? To collect tax or to provide benefits from the tax money? If the government is not able to provide infrastructure then what is wrong in allowing the entities in SEZs to provide that and not to pay tax? After all that’s what tax money in the first place is supposed to be used for. But in India where tax payer’s money is used for anything (even to subsidise the travel bill of journalists) but for welfare of tax payers, it was certain to have dissenting opinions. I am sure politicians will join the bandwagon because they have no existence in a free market economy like SEZs

I wonder why no one raises the point of having investments from tax havens like Mauritus, Isle of Man, Luxembourg, British Virgin Islands, etc. Owing to DTAA, all entities registered in those places and doing business in India pays no tax. They don’t bring any benefits which are supposed to come from entities in SEZs. FDI flow is preferable anyday to FII inflow, which most of the times is country’s own money earned by shady means. I don’t mean to say that this arrangement should be stopped but why to target SEZs singularly?

I would rather the learned columnist provided ways and means to increase the direct tax revenue in a country where only 2% population pay taxes. May be collecting tax from tax evaders is difficult, so every year those who pay taxes are made to pay more by all kind of cess.

I hope that atleast people whose views matter, extend their horizon a little bit more, and think of the larger good rather than to drive home their own (hidden) agenda.