Board of Approval for SEZs to meet on Nov 23

"The 49th meeting of the BoA for SEZs shall be held on November 23," the Commerce Ministry said.

Development Commissioners have been asked to forward proposals regarding SEZs along with their comments at the earliest so that they could be deliberated over at the meeting, it said.

In its last meeting on September 19, the BoA gave extra time to 37 Special Economic Zone (SEZs) developers to execute their projects. The developers include Navi Mumbai SEZ, DLF Commercial Developers and Tata Consultancy Services.

The 19-member inter-ministerial board had also approved three new proposals, including one for setting up a sector-specific SEZ for the petroleum and oil and gas industry in Visakhapatnam.

Under the SEZ Act, SEZ units get 100 per cent tax exemption on profits earned in the first five years of operation, a 50 per cent exemption for the next five years and another 50 per cent exemption on re-invested profits in the following five years.

SEZ developers, on the other hand, get a 100 per cent tax exemption on profits for 10 years.

Merchandise exports from the 143 operational SEZs in the country totalled Rs 72,255 crore in the April-June period, an increase of 23 per cent vis-a-vis the same period last year.

The revamping of the SEZ policy assumes significance in the wake of waning interest of developers in special economic zones due to uncertainty over tax incentives.

The draft Direct Taxes Code has proposed withdrawal of exemptions for new units that come up after the tax code is implemented and replacement of tax exemption on profits for developers with sops on investments.

The industry has also expressed concern over the imposition of Minimum Alternate Tax.
Under the SEZ Act, SEZ units get 100 per cent tax exemption on profits earned for the first five years, a 50 per cent exemption for the next five years and another 50 per cent exemption on re-invested profits in the following five years.

SEZ developers, on the other hand, get 100 per cent tax exemption on profits for ten years.

The discussion paper said that the SEZs would also help in achieving the country's export target of USD 500 billion by 2013-14.

In order to create a level playing field and increase exports from SEZs, it said that SEZ entities should get broadly similar incentives as being provided to the ones outside the tax free enclave that is Domestic Tariff Area (DTA).

"Denial of export benefits like duty drawback, focused product and focused market scheme and VKGUY to the SEZ units, which are available in a certain quantum to DTA units, have put the SEZ units at a disadvantage in many cases. Lower interest in setting up units would result in an adverse impact on the incentives for developers to set up SEZs," it said.

It said that these issues need to addressed "urgently" by way of rationalising the policy.
It also proposed to allow SEZ units to sell their products in DTA on concessional duty, a move which could help in attracting FDI.

"DTA sale entitlements could specifically be considered to attract FDI in manufacturing sector," it said.

To address the problem of contiguity norms for setting up of a tax free zone, the discussion paper has suggested that these norms could be applied strictly to the processing area, where the core activity of the SEZ takes place and with some flexibility to the non-processing areas.

"The issue of contiguity impacts the degree of difficulty involved in fulfilling the land needs of SEZs and needs to be addressed as part of the land policy for SEZs," it said.

Currently, the Commerce Ministry relaxes contiguity norms on case-to-case basis.

In order to maintain contiguity, over-bridges, under-passes, sky-walks, flyovers have been required, which lead to an increase in the project cost, it said.

Inviting public comments, the discussion paper said: "The exact norms that satisfy the minimum regulatory requirements would need to be identified".

It also suggested to further liberalise the definition of 'vacant land'. The SEZ Rules defines it as "the land in question would be considered vacant if these structures/ buildings have not been put to commercial use".

The paper asked to extend this definition and include parcels of land on which certain commercial buildings already exist with suitable safeguards and restrictions on benefits.

"The land under pre-existing buildings/structures being used for commercial purposes would not exceed 20 per cent of the overall SEZ land parcel for the proposed SEZ," the paper said.

However, it said that these provisions can be resorted to only to meet the marginal land requirement to meet the minimum land criteria.

The paper further suggested to allow broader category of units that can be set up in a sector-specific SEZ.

Industry experts have raised objections that narrow sector specification to set up sector-specific SEZs has led to an unreasonable restriction on the kind of units permissible in these zones, thereby making it difficult in many instances for them to attract sufficient units to optimally utilise the available land and other manufacturing infrastructure.
It also proposed to relook at the non-processing areas (used to create social or supporting infrastructure like hospital and school of a SEZ).

It suggested that SEZs coming up in the vicinity (say within 50-100 km) of a major urban centre with adequate social infrastructure for the SEZs need, could be disallowed such infrastructure.

"When the SEZ is developed beyond this 50-100 km range, developers could be allowed such social infrastructure with a reasonable area restriction as a proportion of the overall size of the non-processing zone, with permission to serve DTA clients with surplus capacity available after serving SEZ needs," it said adding "this would create incentives for dispersal of economic activity to backward areas".

The paper asked the state governments to follow the SEZ Act in "letter and spirit", thereby denying them crucial benefits at the ground level.

In the wake of several free trade agreement coming into force in India, it proposes that SEZ units should be accorded the most favoured treatment in terms of duty concessions for the different products  accorded under any regional, bilateral or multilateral arrangements entered into by India.

The paper has raised several question for the stakeholders that include how SEZs can be spread to backward regions of the country.