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New law For SEZs: Commerce Ministry Proposes Incentives To Revamp Special Economic Zones

In the Union Budget this year, the government proposed to replace the existing Special Economic Zones (SEZ) Act with new legislation that will allow states to become partners in the "development of enterprise and service centres"

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INDIA: The commerce ministry under Piyush Goyal is proposing a series of direct and indirect incentives, such as deferral of import duties and exemption from export taxes, to revamp the special economic zones through new legislation, the official said.

In the Union Budget this year, the government proposed to replace the existing Special Economic Zones (SEZ) Act with new legislation that will allow states to become partners in the development of enterprise and service centres” (DESH).

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The official said the commerce ministry has sought the views of various ministries, including finance, on the new bill. After gathering feedback, the ministry would seek cabinet approval and then table the new law in parliament.

The proposals seek to provide incentives such as maintaining zero rates of IGST (Integrated Goods and Services Tax) on domestic procurement by a unit in SEZ; continuation of indirect tax benefits for developers of these zones; and allowing depreciation on the sale of used capital goods cleared to domestic customs areas.

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There is also a plan to extend the corporate tax rate to 15 per cent without any exemptions for units running permitted operations in these development centres.

States can also provide support measures to these zones to encourage production and job creation.

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The current SEZ Act was enacted in 2006 to create export hubs and boost manufacturing in the country. However, these zones began to lose their lustre after the introduction of the minimum alternative tax and the introduction of a sunset clause to remove tax incentives.

These zones are treated as foreign entities in terms of customs provisions. Time and again, the industry has called for the tax benefits provided by the law to continue.

Units in SEZs previously enjoyed 100% exemption from income tax on export earnings for the first five years, 50% for the next five years and 50% of the export profit earned for the next five years.

In the 2016–17 budget, the government announced that income tax benefits for new SEZ units will be available only to those units that start operations before March 31, 2020.

As of June 30, 2022, the government has given formal approval to 425 SEZ developers, of which 268 are already operational. These zones have attracted investments of ₹ 6.5 crores and employment for 27 million people.

During April-June this fiscal, exports from these zones grew by 32 per cent to around ₹2.9 crores. It was about ₹10 crore in 2021-22 compared to ₹7.6 crores in 2020-21.

Also Read: MP to Contribute 550 Billion Dollars, to help India become a 5-Trillion Economy: CM Shivraj Singh Chouhan

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