Treat SEZs on a par with domestic tariff areas in terms of incentives: Industry

Last Updated: Sat, Apr 14, 2012 19:00 hrs

With special economic zones (SEZs) likely to be brought on a par with domestic tariff area (DTA) post-direct taxes code (DTC), the industry and economists have demanded that it be given similar treatment with the latter in terms of export promotion schemes like focus product scheme (FPS) and focus market scheme (FMS) and free trade agreements (FTAs).

The Confederation of Indian Industry (CII) said Rs 2.12 lakh crore of investment was locked in various SEZs which could not be ignored mid-way.

“Export being a single digit margin business, five-eight per cent of incentives in FMS and FPS make a big difference,” said Sanjay Budhia, chairman of CII’s national committee on exports and imports.

Neeru Ahuja, partner, Deloitte Haskins and Sells, said the government had already indicated there would be few tax holidays, that too capital investment-linked and not profit-linked.

In a consultation paper, CII said FTAs give duty-free access to a number of products in countries concerned, but these are restricted to only DTA. “This deprives SEZs of the level playing field on a par with the units operating in DTA,” the consultation paper argued.

SEZs used to have incentives but now it is gone. Now, with minimum alternate tax imposed, SEZs are on a par with other industrial areas in paying taxes, Budhia added.

The CII also called for making states, which attract miniscule or no investments in SEZs, lucrative for industry by improving infrastructure, particularly railways.

Only 13 states, out of 27, have operational SEZs. The operational SEZs are mainly concentrated in Andhra Pradesh (36), Tamil Nadu (28), Karnataka (20), Maharashtra (18), Gujarat (13), Kerala (7), Uttar Pradesh (6), West Bengal (5), Rajasthan (4), Haryana (3), Madhya Pradesh (1) and Orissa (1).

The industry body also called for encouraging the state governments to enact SEZ legislation in order to enable the local development commissioners to make ‘single window clearance’ a reality.

At present, the paperwork involved for units in SEZs for conducting business outside is cumbersome and is hurting the productivity of the manufacturing hubs, Budhia added.

“The interests of SEZs need to be protected with national manufacturing investment zones (NMIZs) coming up. Several companies are seeking they be denotified due to non-viability to operate,” he said.

The idea of SEZs was based on the lucrative tax incentives. But the introduction of the direct taxes code is now being looked as a major dampener, as it is proposed to be applicable to the SEZs as well.

"The country still needs incentives in some areas as we are not yet developed to that extent. The government should relook the policy and DTC on SEZs, considering the huge investments that have already gone into it,” Ahuja said.

DTC, expected to come from next financial year, has proposed to do away with profit-linked tax incentives and replacing them with investment-linked concessions.

The SEZ policy was announced in the year 2000. However, the SEZ Act was passed in 2005 and came into effect in 2006. These zones were aimed at acquiring excellence in exports, apart from promoting foreign direct investment and creating employment opportunities along with infrastructure development.

The government is now looking at boosting NIMZs to propel manufacturing. Though not backed by a legislation, the NIMZs are aimed at taking the contribution on manufacturing to India’s GDP from the present level of 15 per cent to 25 per cent by 2022. In the same period, the NIMZs aim at creating over 100 million jobs.

The government had a foregone revenue of Rs 8,630 crore in 2010-11 on account of export promotion concessions to SEZs. The revenue foregone for 2011-12 was estimated by the Union Budget 2012-13 to be at Rs 5,313 crore. And, export from SEZs is 34 per cent of the country’s total exports.

More from Sify: