‘Allow SEZs to sell goods in domestic market at FTA rates’

In a move to make special economic zones (SEZs) more attractive to investors and push manufacturing and employment, the Commerce Ministry has proposed that units in the zones be allowed to sell their goods in the domestic market at the lowest import duty that India offers to its free trade partners.

“We want the government to do a Free Trade Agreement with SEZs. Given the trouble that the SEZs have had to face with the imposition of the minimum alternate tax and dividend distribution tax, units could be allowed this concession. Our proposal has been sent to the Finance Ministry,” Additional Secretary in the Commerce Ministry Arvind Mehta told BusinessLine .

According to the proposal, products being sold by SEZ units in the domestic tariff area (DTA) or the domestic market should attract the lowest import duty that India has offered under its FTAs to other countries, and not MFN tariff (regular customs duty) which they have to pay under the existing policy.

This means that if a SEZ unit wants to sell an item in the domestic market, which has a MFN tariff of 7 per cent, but is allowed from, say, Japan at 0 per cent, then the SEZ unit should be required to pay the lowest rate, which is 0 per cent, for that item.

“Why do you want to buy things from Japan and South Korea at zero duty, if manufacturing can happen here in India and also add to employment?” Mehta asked.

Revenue loss The Finance Ministry, however, feels that the proposal would lead to revenue loss as custom duty collection would go down. “Well, our answer is that you have revenue loss when FTA partners also send goods. All that you are doing is switching and giving a chance to manufacturing in India. We can make it a part of our ‘Make in India’ campaign,” Mehta added.

The proposal, if implemented, will come as a big relief to exporters who have been facing a rough weather in the slowing global market. SEZ exports have been steadily declining over the past two years with shipments falling 7.5 per cent in 2014-15 to $76 billion.

Following the imposition of MAT and DDT on SEZs that were initially promised a tax holiday for prescribed periods, about 40 SEZs have been de-notified. Most investors cited changes in fiscal concessions regime and poor market response as the reasons. There are a total of 202 operational SEZs, bringing in total investments of ₹12,953.85 crore out of 413 zones that have been formally approved and 327 zones that have been notified .

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