NEW DELHI: Looking to give a new lease of life to special economic zones (SEZs), the commerce department has strongly pitched for allowing units in the taxfree enclaves to sell part of their production in the local market and the extension of benefits under the Focus Products and Focus Market export promotion schemes.
The department has also lobbied the finance ministry to scrap minimum alternate and dividend distribution taxes for
SEZ units.
"The scheme needs to be overhauled to boost manufacturing in the country," said a government official, confirming that the three measures cited above ranked high on the department's agenda for reviving the programme.
More than 60% of the total land notified as SEZs is vacant years after the scheme was launched in 2006. Of the total 47,803 hectares of SEZ land notified, only 17,689, or 37%, has been put to use so far, according to ministry of commerce and industry data. And, of 389 SEZs, only 185 are functional. Since being functional is defined as at least one working export unit, the majority of the zones do not have full occupancy.
The department had tasked the Indian Council for Research and International Economic Relations (ICRIER) to conduct an in-depth study of the reasons for the scheme's lack of success. Arpita Mukherjee, principal author of the report, recommends taking a calibrated approach to SEZ approvals and allowing the lowest duties under free trade agreements in these zones. The report's findings and recommendations will be discussed with the commerce department. Commerce minister Nirmala Sitharaman has strongly advocated a review of the SEZ scheme.
The original scheme provided for a complete tax holiday to SEZs but the revenue department clamped down after indications that the programme was being misused for real estate arbitrage apart from IT companies using the avenue to regain tax benefits that they lost with the end of the holiday under the Software Technology Parks of India scheme. "MAT and DDT are only part of the problem. There are bigger issues that need to be addressed to make SEZs successful," said Mukherjee, a professor at ICRIER.
For instance, import duties have been slashed to zero for certain product lines because of India's trade accords, hurting local sales of goods and services by SEZ units, which need to pay the levy as well as sales tax.
Mukherjee said SEZs should enjoy the lowest FTA tariffs and trade agreements signed by the country should take into account implications on SEZs.She also pointed out that there's no restriction on the number of SEZs that can be approved in India unlike most other countries, which take an incremental approach. They first approve a specific number of zones and the programme is widened depending on how successful these are.
Source : economictimes.indiatimes.com