New SEZ law proposed for several benefits

New SEZ law proposed for several benefits

A new law which has been proposed for governing special economic zones (SEZs) shall be in compliant with the World Trade Organization (WTO) norms and may do away with net foreign exchange (NFE).

The proposed Act is aimed towards broad-based parameters, such as employement generation and additional economic activity promotion of investments and research and development, and infrastructure development.

Under the existing SEZ Act, 2005, it was mandatory for units in SEZs to achieve positive NFE earnings (their value of exports must exceed their value of imports). Such units received certain subsidies and tax exemptions from the government for having positive NFE earnings and that resulted in a dispute at the WTO three years ago

The focus of these development hubs would not be just to boost exports, unlike the current SEZs. They would be allowed to sell in the domestic market and duties would be paid only on imported raw materials and inputs, instead of final products.

Customs duty and Integrated Goods and Services Tax (IGST) on capital goods, such as machinery, computer equipment, and raw materials, shall be deferred, according to the proposed law.

The Bill shall propose the re-introduction of certain direct tax benefits, under which units set up in these development hubs shall attract a 15 per cent corporate tax until 2032; These tax benefits will apply to both greenfield and brownfield projects.

Over the past few years, direct tax benefits provided to SEZs were withdrawn over a period, resulting in fewer investments in such zones due to a lack of policy stability. A concessional tax rate can boost domestic manufacturing.

Under the Income Tax Act, any new domestic company making a fresh investment in manufacturing has an option to pay a tax of 15 per cent. But the benefit is available to companies that do not avail of tax incentives and commence production by March 2024.

The Bill, according to the sources, will also have an enabling provision to allow the conversion of existing industrial estates, such as textile parks and food parks, into development hubs. While there is no classification between different types of SEZs in the existing law, the DESH Bill entails two types of development hubs – services and enterprise hubs.

Enterprise hubs will have land-based area requirements and shall permit both manufacturing and services activities. Services hubs will have built-up area-based requirements and shall allow only services-related activities.

What's in the DESH Bill

There'll be modern industrial parks with focus on employment generation and additional economic activities

A separate framework for manufacturing and services units

Development hubs to be fully integrated with domestic markets

A stronger single-window mechanism

State governments will be key stakeholders