Even before 1991, when India’s economy was largely autocratic by design, promoting exports was part of our policy agenda. Designated areas were created as Special Economic Zones (SEZs), these industrial estates were exempted from various duties going against export competition. Established in the mid 1960s, Kandla was our first SEZ in Gujarat. It has long been home to another Reliance oil refinery in the Gulf of Kutch in Jamnagar, which is the major export, but we also have hundreds of other SEZs, all governed by the SEZ Act of 2005. Basically definition, these are duty free enclaves. As long as businesses earn more foreign exchange than they spend each five years, units located here can independently import what they need (ie, without permits, duties and customs checks) and get tax exemptions such as zero GST. can also enjoy. on domestic supplies. Since these operate like offshore areas, any sale of their products and services in the Indian market is subject to regular import duties. However, in 2019, the World Trade Organization (WTO) recognized that the subsidy for our SEZ units violates the rules of fair trade. In response, the government is now planning to enact a bill that will reorganize and reposition SEZs. While it may give us a way, let’s do it with minimal scope for unintended consequences.
The Center proposes to rebrand Indian SEZs as ‘Development Hubs’ under the Development of Enterprises and Services Hub (DESH) Bill. As this legislative proposal is drawn up for WTO compliance, it has reportedly dropped the net foreign exchange earnings criterion for SEZ units, which may be replaced with a set of growth norms that include qualifiers for profit. May include ramp-up in the form of investment and employment. Apart from the expected holiday on customs duty and GST for machinery imports and raw materials, the main benefit could be the offer of a special corporate tax rate of 15% instead of 22%, as available to new manufacturers commencing operations by March 2024. Is. Except that this window will remain open for a decade, existing units will be allowed to avail it if they increase capacity by 50% or reinvest half of their net worth. The 15-year sliding scale of income tax relief under the existing SEZ law of India is likely to continue. With easy approvals, our development centers will be attractive to investors. What the overall impact of the move away from a clear export orientation will be is unclear.
In order to ease the sale by hub units within the country but outside the hub, the Center envisages levying duty only on imported inputs instead of finished products. Also, in the case of domestic sales, the country bill wants the case-by-case retrospective easing of the duty that is currently slapped on imports of capital goods. While redefining SEZs may help us overcome WTO restrictions on export subsidies, it should not distort the playing fields within India. According to reports, the idea of an ‘equalization levy’ to counter hub privileges has been rejected. This would leave hub players with an advantage over the others, with special treatment justified by their rapid pace of expansion. Fostering private investment is a worthy goal, no doubt, but the blurring of target markets will complicate taxation and raise questions as to why non-hub enterprises cannot be treated equally. All Indian businesses need to be more competitive, regardless of location. Generally a lighter levy and lower tariff would be a better formula for this. After all, success stories can emerge from anywhere.
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