Govt to cut corp. 15% Tax in Revised SEZs

The proposal, part of the Development of Enterprises and Service Centers (DESH) Bill that will overhaul SEZs, is to be introduced in the ongoing monsoon session. A government official said the commerce department is planning to implement the law by October.

The new law aims to make the SEZ Act enacted in 2006 to promote exports and manufacturing, in line with WTO norms and to boost manufacturing and job creation. In October 2019, the WTO Disputes Settlement Panel ruled that subsidies to entities located in particular trade zones violate the Agreement on Subsidies and Countervailing Measures.

Prateek Jain, partner, Price Waterhouse & Co LLP, said the concessions provided in the proposed law would be a huge incentive for the industry to consider moving to growth centers and help it achieve scale.

While newly incorporated manufacturing companies still pay a corporation tax rate of 15%, the concessional rate is available only to those units that will manage to start operations by March 2024. Other companies will have to pay a tax rate of 22%. In 2019, Finance Minister Nirmala Sitharaman reduced the corporation tax rates for all companies from 30% to 15% for new manufacturing units starting production before March 31, 2023. That time limit was extended by one year to compensate. Years lost to the pandemic.

“In this Bill, we are saying, this limited window of concessional tax should be extended for development centers for a few more years. We have proposed that the window for new manufacturing units in growth centers should be available for 10 years as against the current plan, which expires in March 2024,” said the official requesting anonymity.

The Cabinet Committee on Economic Affairs is likely to consider the bill next week.

“We are targeting the Bill to be introduced in this current session of Parliament; So ideally it should come before the cabinet next week. But it is not certain,” said a second official, requesting anonymity.

Questions emailed to the Commerce Department on Thursday remained unanswered as of press time.

The draft DESH Bill, reviewed by Mint, proposes that states and the Center be allowed to offer incentives in the form of tax exemptions, exemptions and duty refunds to support development centres. It also talks about the option of providing access to credit and working capital for developers or units in addition to financial subsidies or schemes in respect of any goods or services and measures to facilitate developers or units to facilitate quick approval and compliance. Is.

However, units located in SEZs used to enjoy 100% income tax exemption on export earnings for the first five years, 50% for the next five years and 50% of the export profits back for the next five years. In the 2016-17 budget, the government said that the income tax benefit to new SEZ units would be available only to those units which start activity before March 31, 2020 as it wants to do away with the exemption. With the sunset clause over, there is not much incentive left for entities to set up manufacturing facilities in these areas.

“The income tax concession in SEZs was linked to exports, and it will be interesting to see what parameters the proposed concession is allowed would depend on,” Jain said.

The DESH law goes beyond promoting exports and has a broader objective of promoting domestic manufacturing and employment generation through the proposed growth centres. According to the draft bill reviewed by Mint, these growth centers will not necessarily be required to be net foreign exchange positive in the SEZ regime and will be allowed to sell more easily in the domestic sector. With this, the new development centers will comply with WTO norms.

Deloitte India partner Saloni Roy said the bill aims to create enterprise and service hubs for economic activities and to develop infrastructure facilities.

As per the draft bill, hubs will be allowed to pay duty only on imported inputs and raw materials instead of the final product in the domestic market.

In addition, the draft law also provides for an online single window portal for providing time-bound approval for setting up and running of development centers including a single application form and return.

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