Ministries spar over keeping eye on forex earnings via SEZs

The Union ministries of finance and commerce are at loggerheads over setting up an stringent mechanism to ensure that foreign exchange earned through special economic zones (SEZs) are not evaded by private companies which get considerable tax benefits.

The difference in their positions have surfaced during the Action Taken Reports (ATRs) filed by the respective ministries in response to Parliament’s Public Accounts Committee report on the SEZs. The special zones were created for promotion of goods’ exports about five years back to boost foreign exchange earnings. Twenty-two units have come up so far.  The PAC, headed by senior BJP leader Murli Manohar Joshi, in its report tabled before both the Houses  of Parliament last year had observed that the SEZs had failed to encourage exports while comparing their revenue figures. The SEZs had overall exports to the tune of Rs 7,149 crore but the actual content of foreign exchange was only Rs 1999 and the remaining earnings were from domestic tariff area (DTA).

Agreeing that the primary objective of augmenting foreign exchange earnings has been diluted, the finance ministry under P Chidambaram, in its ATR, said the present monitoring mechanism relies on self-certification of quaterly and annual performance reports. But, the ministry said that their commerce counterpart  had been informed about the shortcoming in these filters to check revenue pilferage.

The department of revenue, which comes under finance ministry, has come across instances in which companies have either jacked up their export figures or have not even started manufacturing. That is why the ministry wants to put a mechanism to check misuse of SEZ policy so that actual foreign exchange earned matches export figures declared by the companies.  But, Anand Sharma-led commerce ministry is of the view that SEZ Act has enough provisions like units and developers have to maintain complete accounts to show different figures of production, consumption, export and import and domestic sales.  The units are allowed to go for DTA on paying full duty. Also the SEZ Rules has procedure for checking book of accounts by development commissioners and slapping penalty on erring companies.

The finance ministry has suggested that at least 51 per cent of the production of goods and services by units be physically exported out of the country to swell the foreign exchange coffer.