Fiscal sops for SEZs must be linked to investments, jobs: panel

A major over-haul of the existing Special Economic Zones (SEZs) policy by delinking fiscal incentives from exports and linking them to investments made and employment generated has been proposed by the review committee constituted earlier this year by the Centre.

“The proposal on linking incentives to investments and employment is in line with the overall vision of the group to change the objective of such zones from creation of islands of exports to becoming catalysts of economic and employment growth,” an official told BusinessLine .

The committee, headed by Bharat Forge’s Baba Kalyani, has proposed reincarnation of SEZs in India as ‘Employment and Economic Enclaves (3Es)’.

The main focus of the recommendations of the SEZ committee is on migration from export focus to economic and employment growth focus, as per the report. For this to be achieved, incentives for the manufacturing SEZs have be based on specific parameters including demand, investment, employment and technology.

At present, SEZ units get 100 per cent income tax exemption on export income for first 5 years, 50 per cent for next five years and thereafter 50 per cent of the ploughed back export profit for next 5 years. However, the exemption comes with a sunset clause to be effective from April 1 2020.

SEZ developers, on the other hand, get income tax exemption for a block of 10 years in a period of 15. The sunset clause for developers is already effective from last year. SEZs are, however, subjected to a Minimum Alternate Tax of 18.5 per cent and a Dividend Distribution Tax.

The panel has also suggested that flexibility should be considered to enable 3E units to seamlessly support businesses outside the zones. “Depending on business requirements (and subject to specific safeguards) reversal of duty or tax benefit on inputs used for manufacture can be considered…,” the report says.

Other key recommendations include development of last mile and first mile connectivity infrastructure by government for land parcels which are far from highways and urban agglomerations, supplying power directly to units from IPPs at competitive rates, fast-tracking various approvals through online application process, integrating MSMEs with the 3Es and giving additional incentives to zones focusing on priority industries.

For services SEZs, the committee has recommended retaining tax benefits including extension of sunset clause, lowering taxes (such as a MAT of 9 per cent and exemption from DDT) for identified strategic services and allowing supplies to domestic market in Indian currency to bring parity between goods and services.

The SEZ policy review committee had its final round of consultations with the committee members under the chairmanship of the Commerce Secretary late last week.

The objective of the committee was to suggest measures to make the SEZ policy WTO-compatible, encourage manufacturing and the services sector and lead to maximising utilisation of vacant land in SEZs. The Centre will now examine the recommendations and come up with a revised policy for SEZ units and developers.

There are a total of 223 operational SEZs in India as of July 2018 with 5,146 approved units. Total investments of ₹4,74,917.37 crore has flown into the SEZs so far creating jobs for 19,77,216 persons.

Apart from various industrialists, Principal Secretaries of Gujarat, Maharashtra, Telangana, Andhra Pradesh, Tamil Nadu and Karnataka, and the Additional Secretary and Director in charge of SEZ in the Department of Commerce are also members of the group.

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