With the proposed amendment of the SEZ Act taking time, the government is considering an executive order to allow SEZ units to sell their goods domestically by paying just the `duty foregone’ on inputs that would make them more competitive, sources have said.
The move could help boost the attractiveness of SEZs which has taken a substantial hit after the introduction of the minimum alternate tax and the kicking in of the sunset clause on direct tax exemption for units.
“It has been a long-standing demand of SEZs that they be allowed to sell in the domestic tariff area on a duty-foregone basis instead of paying import duty on the items. This would bring down the tax burden and make their products more competitive vis-a-vis local producers. The Commerce Department has proposed to the Finance Ministry that this should be allowed through a notification as an amendment of the SEZ Act may take long,” a source tracking the matter told businessline.
The present SEZ Act and rules allow SEZ units to sell their items in the domestic tariff area (DTA), which is basically the domestic market outside the zones, provided they pay customs duties on the products.
However, this rule is a big disincentive for SEZ units as it makes their products much more expensive in the domestic market compared to those produced by domestic manufacturers outside the zones.
The Export Promotion Council for EOUs and SEZs–a body representing the interests of SEZ developers and units–had been long pushing for SEZ units to be allowed to sell in the DTA on a `duty-foregone’ basis. This means that instead of paying customs duties on the goods sold in the DTA, the duty payable for SEZ units will be based on the duty on the raw materials used to manufacture those goods.
“The SEZ Amendment Bill includes the provision for allowing SEZ units to sell in the DTA on `duty foregone’ basis. But it will take time. So, a shorter route is to get it done through a notification. The Finance Ministry is examining the proposal in order to take an appropriate decision,” the source said.
The government has been bringing about changes in SEZ rules, wherever it is possible without amending the legislation. It recently announced a series of regulatory amendments aimed at promoting SEZs focused on semiconductor and electronic component manufacturing.