New SEZ law may limit tax sops, relax restrictions on units

The central government is considering an amendment to the SEZ Act to stop direct tax incentives for units in special economic zones after a certain time.  

The government is contemplating lifting restrictions on units in special economic zones, commerce minister Piyush Goyal announced recently.  Goyal further noted that the government is aware of the industry’s demand to extend benefits of the export boosting scheme Remission of Duties or Taxes on Export Products (RoDTEP) to SEZs. 

Goyal, however, added that in the view of budgetary constraints his department is taking a cautious approach.

The amendments to SEZ Act, 2005, proposed by the ministry of commerce, will be put up before the cabinet for approval. Earlier, the government had planned to make changes with the DESH Bill, 2023, but the same was objected to by the ministry of finance.

While new SEZ developers will not be eligible for direct tax incentives after a certain period, existing units may still continue to enjoy previous benefits.

Under the DESH Bill, the commerce ministry had suggested concessional corporate tax rate of 15% for all greenfield units in SEZs. 

SEZs were created to promote exports and are subject to different economic regulations. The SEZ units are effectively treated as foreign territory for tax purposes. 

SEZ (Amendment) Bill, 2023 is aimed at adjusting custom rules and ensuring easy integration with the domestic market while aligning with the government’s approaches to promote manufacturing, investment and integration with the global value chain. 

This proposed bill upholds the sale of products manufactured in SEZ in the domestic market without import duty. However, the positive net foreign exchange criteria will remain as it is for units in SEZ. These amendments also involve the deferral of custom duty on capital goods, including machinery, computer equipment, and raw materials. 

The sections of industry are of the opinion that SEZ units be allowed to sell their products in the domestic market only after paying import duty on their input. The same demand may be considered under the bill, reported Business Standard. 

Under the new bill the definition of service is likely to be tweaked to allow payment in Indian currency for the supply of services to units in the domestic market. The existing SEZ Act mandates payments for service in foreign currency. The new amendments aim to improve the single window clearance process, regulatory structure, and dispute resolution system.