The Development of Enterprise and Service Hubs (DESH) legislation, set to replace the existing Special Economic Zones (SEZ) Act, is stuck as the Finance Ministry is going slow in approving two key proposals made by the Commerce Department, sources have said.

“The two main proposals awaiting a green signal from the Revenue Department include allowing SEZ units to sell in the domestic tariff area (an area within the country that falls outside the zones) on payment of duties foregone on raw materials and offering a concessional corporate tax rate of 15 per cent for an extended period to all greenfield and some brownfield units in the “development hubs” that are to come up under DESH,” a person tracking the matter told businessline.

The government is seeking to replace the SEZ Act as its attractiveness for investors has declined considerably with the sunset clause setting in on income tax exemption for developers and units. The criteria of units being net foreign exchange positive to be eligible for benefits has also been challenged at the WTO for going against multilateral trade rules that do not allow incentives to be linked directly to exports.

The DESH Bill proposes that SEZs may be recast as development hubs which are to be custom-bonded areas outside the customs territory of India, fully integrated with the domestic market with access to expedited clearances and streamlined processes. 

While features such as strengthened single window mechanism, trade and risk-based compliance mechanisms, streamlined procedures, dynamic regulatory structure and alternative dispute resolution mechanisms are set to make the DESH appealing for investors, the Commerce Department believes that offering a concessional corporate tax rate for an extended period of 15 years to attract more investments.

Moreover, a long-standing demand for SEZs to be allowed to sell in the domestic market under the condition that all duties foregone on raw materials will be paid back must also be accommodated under DESH, according to the Commerce Department.

“The Finance Ministry may be in conflict over extending some of the proposed benefits to SEZs under DESH as it would be on the lines of its revamped and streamlined Customs Warehousing scheme that has not taken off well. The final push may have to come from higher powers,” the source said.

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