The government is considering several measures regarding special economic zone (SEZ) policies and indirect incentives to boost investments in these special zones, according to sources.
The sources told CNBC-TV18 that the commerce and industry ministry has sought extension of income tax benefits for the zones by three more years till March 31, 2023, in the upcoming Union Budget to be presented on February 1, 2020. According to the current policy, a sunset clause on direct tax benefits enjoyed by the SEZs will kick in on April 1, 2020.
Sources said that Rs 28,000 crore worth of investments were in the pipeline for Special economic zones and these investments will be in jeopardy if the direct tax benefits were not extended. The Department of Revenue is yet to take a final call on this proposal, but the tax authorities believe that the zones should opt for the lower corporate tax rate slabs that were announced recently instead of seeking full exemption, they said.
They maintained that the taxman have agreed to make several changes to SEZ norms that were proposed by the Baba Kalyani Committee. A notification regarding these changes are likely to be released soon, which among others.
In its recent report, Baba Kalyani panel had raised the issues of services SEZs which are primarily into information technology sector, being made to accept payments in foreign currency for services rendered to companies based in India. This adds cost for clients of the SEZ based services companies. The tax department has agreed to the Baba Kalyani panel recommendation of using rupee payments for services rendered by the IT and services SEZs to clients based in the domestic market.
The government is also considering to recast the SEZ policy in the backdrop of a WTO appellate panel ruling that the tax-free enclaves in India do not comply with global trade norms. Commerce ministry and Department of Revenue officials are scheduled to meet on December 20 to discuss policy options that can be considered for a complete overhaul of the SEZ regime, they said.
According to sources, taxman don’t want to de-link SEZ indirect tax incentives with exports and change its nature. North block is keen on investment, employment and value addition-linked incentives for bonded manufacturing zones that would be capable to supply goods to the domestic market without payment of duties.
According to the current policy regime, tax benefits are linked to exports and duty has to be paid for domestic supply of goods and services.
As of now, there are 5,168 functional industrial units in 238 operational SEZs across the country. Since the SEZ policy was notified 2006, Rs 4.88 lakh crore has been invested in the zones which employ 18.61 lakh persons.