The Commerce and Industry Ministry’s efforts to recast the SEZ Act into a new law, that will allow units located in the so-called new ‘Development of Enterprise and Service Hubs’ (DESH) to produce both for the domestic and international markets without constraints, is gaining momentum with discussions on around a draft legislation.

“Finance Minister Nirmala Sitharaman had announced in this year’s Budget that the SEZ Act will be replaced with new legislation for DESH by around September 2022. A draft has been put together by the Commerce department with the help of legal advise. But it is still under discussion,” a person tracking the matter told BusinessLine.

No constraints

Per the plans under discussion, producers in DESH will be allowed to sell in the domestic market as well as export without constraints. “However, if goods from the hubs are sold in the domestic market, they are likely to be subjected to customs duties, including anti-dumping, countervailing and safeguard duties, where applicable,” the source said.

The government is set to overhaul SEZs as they have lost much of their sheen following the exhaustion of income tax exemptions for both developers and units. A single-window clearance system and world-class infrastructure will be key points in the new legislation, ministry officials had earlier said.

Developers and units in the hubs are likely to be exempted from any duty of customs on goods exported from, or services rendered, from the hub to any place outside India. There are also provisions for exemptions from excise and other taxes for supplies from the domestic market to units in the hubs.

“There are a lot of conditions and clauses attached to tax exemptions based on whether items are being exported or sold in the domestic market. There would be more certainty on these as discussions move towards finalisation,” the source said.

Approval process

The Board to be set up to notify the hubs will be required to follow certain proposed principles while giving approval.

These include generation of additional economic activity; creation of employment opportunities; promotion of investment from domestic and foreign sources;  promotion of innovation, and investment in research and development; development of infrastructure facilities; integration with global supply and value chains and maintenance of manufacturing and export competitiveness and maintenance of sovereignty and integrity of India, the security of the state and friendly relations with foreign states.

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