The fate of the proposed Development of Enterprise and Service Hubs (DESH) Act, set to overhaul SEZ rules to turn them into more inclusive economic hubs, is likely to be decided by the new government that comes in after the general elections in the country, sources have said.

“The Commerce Department worked on the draft DESH Bill to incorporate changes suggested by the Finance Ministry and other line ministries affected by it. It was also examining the option of bringing in the new rules through the SEZ  (Amendment) Bill, 2023, which would be a quicker exercise. But it seems time to iron out all the creases before the general elections has run out. It is likely that the matter will now be taken up after the general elections,” an official tracking the matter said.

Finance Minister Nirmala Sitharaman proposed the framing of the DESH Bill in her FY23 Budget speech to make the SEZ policy more attractive for investors. She said the new legislation would cover all large existing and new industrial enclaves to optimally utilise the available infrastructure and enhance competitiveness of exports.  Following the sunset clause setting in on income tax exemption for SEZ developers and units, investors have been losing interest.

“The idea behind the proposed DESH Act was also to shift the focus from exports to creation of manufacturing and services hubs that will cater to domestic market. But there were disagreements between the Commerce Department and the Finance Ministry on tax sops and duty exemptions,” another source said.

One of the fiscal benefits initially proposed by the Commerce Department but rejected by the Finance Ministry was freezing of the concessional corporate tax rate of 15 per cent for greenfield ventures till 2032.

The Commerce Department had also proposed permitting the sale of SEZ-manufactured products in the domestic market without imposing import duties to bring about parity with non-SEZ units benefitting from zero or reduced import duties through free trade agreements.

Proposals for streamling procedures include auto-renewal of LoAs (letters of approvals), provisions  for conversion of existing industrial estates/parks as development hubs, subject to meeting the required eligibility criteria, provisions for de-notification of development hubs, including partial de-notification of certain floors in services hubs.

These measures lead to ease of entry and exit for businesses, and are intended to enhance ease-of-doing-business in development hubs, officials had said earlier.

The initial proposal also included removal of the Net Foreign Exchange (NFE) clause that required units in SEZs to be net foreign exchange earners by exporting more than they imported.