SEZ (Special Economic Zones) Act will be replaced with new legislation…for the development of enterprise and hubs… It will cover the existing industrial enclaves and enhance the competitiveness of exports, said FM Nirmala Sitharaman while presenting her Budget 2022 speech.
This is possibly to reduce the compliance burden and allow companies operating within the conclaves to sell their products in the domestic market without additional customs duty.
While the department of commerce has been looking to make changes in the SEZ norms for some time now, it had recently received in-principle approval from the finance ministry.
In January, commerce secretary BVR Subrahmanyam had said: “If there is a unit in an SEZ facing the domestic market, it will behave like a domestic tariff area entity. If it is facing the international market, it will behave like an SEZ unit. It will still be one unit. That’s going to be a breakthrough once we get it through the next session of Parliament.”
SEZs are areas within the country that have different economic regulations and are considered foreign territory. They not only aid foreign investment, but are export hubs as well. Companies operating in such zones get tax sops from the government and also pay lower tariffs when the goods are exported and not sold outside these zones.
The current legislation is over 16 years old. According to industry officials the legislation was framed under different circumstances and a lot has changed since then. Rules are complicated and there is also a need to make it World Trade Organisation (WTO) compatible.
The department of comments has already taken inputs from the industry and export promotion council. The process of drafting the new legislation has already begun and should be done in a few months.
To enable ease of doing business in SEZ units, the government will also undertake reforms in customs administration of SEZs and make it fully IT-driven and function on the Customs National Portal with a focus on higher facilitation and with only risk-based checks. “This reform shall be implemented by 30 September 2022,” the finance minister said.
In the past, an expert committee led by Bharat Forge Chairman Baba Kalyani was formed to review the SEZ policy. It has already submitted its report, recommending significant changes in the SEZ policy, including the formulation of separate rules and procedures for manufacturing and service SEZs.
Mahesh Jaising, Partner, Deloitte India, said: “SEZ act to be replaced with new legislation to enable State partner with the Industry. This is a much awaited announcement, in the backdrop of the Baba Kalyani report, the vision of the Ministry of Commerce on SEZ going forward and to address new ways of working from home, need for agility of activity in SEZs, etc.”
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