Commerce Ministry Suggests Various Incentives to Revamp SEZs

The government’s plan to revamp the Special Economic Zones (SEZs) may start with introducing various direct and indirect incentives proposed by the Ministry of Commerce. The incentives may include exemption from export taxes and deferral of import duties which could pave the way for revamping the SEZs through new legislation. 

The Centre proposed in the Union Budget 2022 to replace the existing law governing SEZ with new legislation enabling states to become partners in the Development of Enterprise and Service Hubs (DESH).

According to an official, the Ministry of Commerce has sought views from different ministries on the new bill for SEZs, including finance. The Ministry would seek approval of the Union Cabinet after collating the feedback and then introduce the bill in Parliament.

The proposals seek to give incentives, such as a continuation of indirect tax benefits to developers of SEZ zones, retention of zero-rating of IGST and allowing depreciation on the sale of capital goods cleared to domestic tariff areas.

There is a plan to extend the corporate tax rate to 15% without exemptions for units undertaking authorised operations in the development hubs. The states can also give support measures to SEZ to boost job creation and manufacturing. 

Currently, SEZs are treated as foreign entities in terms of customs. The industry has repeatedly demanded continuing tax benefits provided under the current law. SEZ units used to enjoy 100% income tax exemption for the first five years on export income, 50% for the next five years and 50% of the ploughed back export profit for the next five years. 

In the Budget 2016-17, the government announced that income tax benefits to new SEZ units would be available to only the units which commence activity before 31 March 2020. As of 30 June 2022, the government has given approvals to 425 SEZ developers, of which 268 are operational. The SEZs have attracted about Rs.6.5 lakh crore investments and employ around 27 lakh persons.

The SEZ exports rose by 32% to around Rs.2.9 lakh crore during the April-June fiscal. It was around Rs.10 lakh crore in 21-22 compared to Rs.7.6 lakh crore in 20-21. While presenting the Budget 22-23, Finance Minister Nirmala Sitharaman stated that the SEZ Act would be replaced with new legislation enabling the states to become partners in the DESH. It would cover all new and large existing industrial enclaves to utilise the available infrastructure and enhance exports’ competitiveness.

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