The Finance Ministry may not agree to the Commerce Ministry’s proposal for extension of concessional corporate tax of 15 per cent to new SEZ units as part of the Development of Enterprises and Services Hub (DESH) Bill, 2022.

But it is considering other major demands such as allowing SEZ units to sell their goods in the domestic market without the imposition of Customs duties and getting payment for services rendered there in rupees instead of foreign exchange, sources have said

Efforts are on by the Commerce Ministry to get the DESH Bill, that will replace the SEZ ACT, finalised soon, so that it can be presented in Parliament. Meetings are on with the Finance Ministry to resolve outstanding issues, a source tracking the matter told businessline.

Not attractive anymore

The government is seeking to replace the SEZ Act as it is not very attractive to investors anymore after the sunset clause set in on income tax exemption for developers and units. Moreover, the criteria of units being net foreign exchange positive, to be eligible for benefits, has been ruled as being against multilateral trade rules at the WTO that does 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 Customs territory of India fully integrated with the domestic market with access to expedited clearances and streamlined processes. 

By proposing to de-link benefits under DESH with export earnings, the Commerce Ministry has sought to make the scheme WTO-compliant.

Features of the DESH scheme would include a strengthened single window mechanism, trade and risk-based compliance mechanisms, streamlined procedures, dynamic regulatory structure and alternative dispute resolution mechanisms.

However, the Commerce Department’s  suggestion that DESH should also offer a concessional corporate tax rate of 15 per cent to new SEZ units for an extended period, till 2032, to pull in more investments, is not going down well with the Revenue Department, the official said. “The Revenue Department is hesitant in giving its consent to the proposal on corporate tax concession as it believes that its implementation could be problematic,” the official added.

But the Finance Ministry is actively discussing other major proposals.

One such suggestion is allowing SEZ units to sell in the domestic market or domestic tariff area (DTA) without being subjected to Customs duties under the condition that all duties foregone on raw materials will be paid back. Another major demand is allowing SEZ units to get payment in rupees for supply of services to the DTA. “If payment to SEZ units for services supplied is allowed in rupees, it will help them get more contracts,” the source said.