The official said that the commerce ministry has sought views of various ministries, including finance, on the new bill.
The official said that the commerce ministry has sought views of various ministries, including finance, on the new bill.
An official said the commerce ministry is proposing direct and indirect incentives such as deferment of import duties and exemption from export taxes to reform special economic zones through a new law.
In this year’s Union Budget, Government proposes to replace existing law governing Special Economic Zones (SEZs) with a new law to enable states to become partners in ‘Development of Enterprises and Service Centers’ (DESH).
The official said the commerce ministry has sought views of various ministries, including finance, on the new bill.
After collating the feedback, the ministry will seek cabinet approval and then table the new bill in Parliament.
Among the proposals are to provide incentives such as retention of zero-rating of IGST (Integrated Goods and Services Tax) on domestic purchases by an entity in a SEZ; Continuing indirect tax benefits to developers in these sectors; and allowing depreciation on the sale of used capital goods approved for domestic tariff areas.
There is also a plan to increase the corporate tax rate to 15% without any exemption for units having authorized operations in these development centres.
States can also provide support measures to these sectors to boost manufacturing and job creation.
The existing SEZ Act was enacted in 2006 with the aim of making the country an export hub and promoting manufacturing. However, these sectors began to lose their luster after the introduction of the sunset clause to levy the Minimum Alternate Tax and removal of tax incentives.
These territories are treated as foreign entities in the context of customs related provisions. The industry has repeatedly sought continuation of the tax benefits provided under the law. The units of the SEZ used to get 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 had announced that income tax benefit to new SEZ units would be available only to those units which start activity before March 31, 2020.
As of June 30, 2022, the government has given formal approval to 425 SEZ developers, of which 268 are operational. These sectors have attracted investment of about ₹6.5 lakh crore and have given employment to about 27 lakh persons.
During April-June this fiscal year, exports from these sectors grew by 32% to around Rs 2.9 lakh crore. It was around ₹10 lakh crore in 2021-22 as compared to ₹7.6 lakh crore in 2020-21.
Presenting Budget 2022-23, Finance Minister Nirmala Sitharaman had said: “The Special Economic Zones Act will be replaced by a new law that will enable states to be partners in the development of enterprise and service centres.”
It will cover all major existing and new industrial zones to make better use of the available infrastructure and enhance the competitiveness of exports.