Budget FY23: Special economic zones could benefit from a budgetary boost

The new SEZ legislation will likely be guided by the recommendations of the Kalyani committee

There is still speculation about the Union budget, but for the fiscal year 23 budget, some speculation regarding the amendment of the law on the special economic zone now has more credibility, following recent statements by the Secretary of Commerce BVR Subrahmanyam. “For the first time, you will find specific paras addressed to us (the Ministry of Commerce). The old story that we wanted something and the Department of Finance didn’t do it is gone. We brought harmony to it, ”said Subrahmanyam in his speech at the summit of the Confederation of Indian Industry Partnerships. The benchmark is that the Ministry of Commerce and the Ministry of Finance are often not on the same wavelength, especially when it comes to tax incentives for SEZ units and allowing them to sell within the national tariff zone. The budget is expected to announce the simplification of SEZs as the Commerce Ministry rewrites legislation.

The SEZ Law was passed by Parliament in 2005, followed by rules promulgated in February 2006 with the aim of attracting foreign direct investment, developing world-class infrastructure and creating a competitive environment at scale. global and hassle-free for companies engaged in the export of goods and services. According to the official Special Economic Zones fact sheet, up to 425 SEZs have received formal approval and 35 have received approval in principle as of November 30. But only 268 of them remained operational. SEZs across the country employed up to 2.36 million people. While the SEZ policy has been taken advantage of by companies in the service sector, those in the manufacturing sector have languished in comparison.

Appeals for help to SEZs gained traction after the pandemic hit their operations hard, as this newspaper reported. Outgoing shipments of manufactures and commercial services from the SEZs collapsed by 21% from the previous year to Rs 2.46 lakh crore in FY21, while overall merchandise exports from the countries fell only 3% to Rs 21.54 lakh crore according to data collected by Export Promotion. Advice for export oriented units and SEZs. Service units, the dominant segment in SEZs, seem to have coped better with the impact of the pandemic. Nonetheless, overall exports (both goods and services) from SEZs fell by almost 5% in FY21, compared to a 1.5% drop in the country’s total exports in terms of rupees.

The Commerce Secretary hinted that a major budget announcement on simplification is that “if there is a unit in a SEZ facing the domestic market, it will behave like a national tariff zone entity.” If it faces the international market, it will behave like a SEZ unit. It will always be a unit. It will be a breakthrough once we get through the next session of Parliament. As FE reported, the government may allow these SEZ units to sell goods in the domestic market, subject to a lower tax than the usual tariffs they are currently required to pay upon sourcing. in the internal tariff zone. This levy should neutralize the advantages enjoyed by SEZs – being specifically delimited free enclaves – compared to national manufacturers, in order to ensure a level playing field for companies operating outside these zones.

The plan, which requires the approval of the Ministry of Finance, aims to help SEZs affected by Covid to make better use of their spare capacity. Likewise, the Ministry of Commerce is developing a mechanism to allow partial de-recognition of existing SEZs so that areas that are no longer in demand can be used for other purposes. In rewriting the SEZ legislation, the Ministry of Commerce will be guided by the recommendations of the expert committee headed by Bharat Forge President Baba Kalyani, who submitted its report in November 2018 to revitalize these areas and help achieve the India’s merchandise export target of $ 1 trillion by 2027. -28.

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