Nath has written a letter to the Prime Minister strongly protesting the move and feared it would act as a disincentive in promoting the fledgling SEZs aimed at boosting exports and employment.

The move has evoked sharp reaction from the industry, which said it was against the spirit of the proposed central legislation on SEZs, which is to be taken up by the Cabinet after the group of ministers finalised its recommendations.

This proposal to end tax holiday would greatly discourage investment in SEZs which have been touted as the vehicle of export-led growth of the economy and employment generation, sources said.

As part of rationalisation and simplification measures, the Finance Minister inserted a sunset clause for SEZ units, which stipulates that no deduction of export profits would be allowed to any undertaking which began manufacturing articles or computer software after March 31, 2009 in a SEZ.

As of now, such undertakings are allowed 100 per cent income tax exemption for a period of 10 years, 100 per cent tax holiday for the first five years, 50 per cent for the next two years and 50 per cent of the profit ploughed back in the capital investment for the next ten years.

In the draft Special Economic Zones Bill which was referred to GoM, this exemption was proposed to be extended to 20 years, beginning from the date the unit starts production.

With this amendment, every unit, irrespective of this period, will be taxed after 2009.