SEZs’ tax sops

•  There is lack of clarity in the proposed Goods & Services Tax (GST) regime on the continuation of tax & duty exemptions in case of SEZs(Special economic zones).
• According to the Commerce Ministry, many tax and duty incentives have been offered to SEZ units and developers in the current SEZ policy to help them attract investments, and in turn, generate employment and boost exports. Pointing out that the proposed GST regime does not provide clarity on these SEZ-related incentives, the Commerce Ministry sought continuation of the tax and duty exemptions.
• As per the current norms, SEZs are tax and duty-free enclaves and are deemed to be foreign territory for purposes of taxes, duties and trade.
• Incentives offered to SEZ units include duty-free import and duty-free domestic procurement of goods for development, operation and maintenance of SEZ units. SEZ units are also exempted from Central Sales Tax (CST), service tax and State sales tax.
• Incentives offered in the present SEZ-related policy to SEZ developers include exemption from customs/excise duties for development of SEZs for authorised operations approved by the SEZ Board of Approval, besides exemption from CST and service tax.

About SEZ:
India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000.
This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations. SEZs in India functioned from 1.11.2000 to 09.02.2006 under the provisions of the Foreign Trade Policy and fiscal incentives were made effective through the provisions of relevant statutes.
After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments. The main objectives of the SEZ Act are:

• Generation of additional economic activity
• Promotion of exports of goods and services;
• Promotion of investment from domestic and foreign sources;
• Creation of employment opportunities;
• Development of infrastructure facilities;

It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.
The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and creation of related infrastructure. A Single Window SEZ approval mechanism has been provided through a 19 member inter-ministerial SEZ Board of Approval (BoA). The applications duly recommended by the respective State Governments/UT Administration are considered by this BoA periodically. All decisions of the Board of approvals are with consensus.
The SEZ Rules provide for different minimum land requirement for different class of SEZs. Every SEZ is divided into a processing area where alone the SEZ units would come up and the non-processing area where the supporting infrastructure is to be created.

By: Vishal