The new legislation to govern special economic zones is likely to propose a single-window clearance mechanism, delinking net positive foreign exchange requirement, introducing several tax benefits, among others, according to a document reviewed by BQ Prime.
The legislation, called the Development of Enterprise and Services Hub or DESH Bill, was announced by Finance Minister Nirmala Sitharaman in her 2022 budget speech. The bill has been listed for introduction in the ongoing session of parliament.
DESH aims to expand the scope of SEZs from export promotion to infrastructure development. BVR Subrahmanyam, secretary of the Department of Commerce, in a post-budget briefing, said that the new proposed law will focus on turning these areas into large manufacturing hubs.
The legislation will also ensure easy compliance with customs including ease of doing business. Unlike its predecessor, SEZ 2.0 will also cater to the domestic tariff area at lower duties.
BQ Prime’s emailed queries to the Ministry of Commerce remained unanswered.
According to the document, here are the top proposals that the government is likely introduce:
To ensure ease of doing business, an online portal will be set up to serve as a single-window clearance mechanism for approvals for setting up development hubs.
Do away with the need to maintain a positive net foreign exchange. SEZs will accept payments in rupees. The current foreign exchange rules prevent SEZ units from making payment in Indian rupee.
These hubs will likely be allowed to sell goods or services to domestic tariff area with payment of applicable customs duty.
The new legislation is likely to denotify empty spaces of above 100 million sq ft built-up area in SEZs so that it can be used for other purposes.
Customs duty and IGST payable on imports are likely to be exempted if imported goods are used as inputs in manufacturing within development hubs or if these goods are supplied from one development hub to another. The new bill is also likely to remove export duty on goods from development hubs.
The new rules were drawn as 50% SEZ units were lying vacant, India’s Revenue Secretary Tarun Bajaj said in a post-budget interview with BQ Prime. Most businesses wanted transition from exports and to cater to the domestic market as well, he said.
Sitharaman had announced in her budget speech that the new proposed law will “cover all large existing and new industrial enclaves to optimally utilise available infrastructure and enhance competitiveness of exports”.
The committee formed by the government in 2018 and led by Bharat Forge Ltd. Chairman Baba Kalyani recommended moving away from exports to a more integrated hub. As this would boost employment and economic activities supported by quality infrastructure and ease of doing business.
It also recommended creation of a manufacturing ecosystem that is delinked from export performances. The initiatives should be linked to investment committed, job creation, promoting women in job, value addition, technology differentiation, trade potential and priority industry, the report said.
This assumes importance because the sunset clause introduced in the SEZ Act in 2020 allowed phased income-tax holiday for 15 years for units that started production on or before June 30, 2020.