Sez Act Changes Expected In Budget To Help Covid Affected Units

In the Union budget 2022-2023, the Center is likely to propose an amendment to the law on special economic zones (SEZs) to reduce the burden of compliance and allow companies operating within conclaves to sell their products. in the domestic market without additional customs duties.

The government could allow companies in SEZs to accept payments in rupees, The Economic Times reported, citing sources. The less stringent standards may also allow entities without benefits to be treated on an equal basis with those outside the SEZ, according to the report.

While the Commerce Department has been seeking to change SEZ standards for some time, it recently received approval in principle from the Department of Finance.

Referring to a budget announcement on SEZ standards, Secretary of Commerce BVR Subrahmanyam recently said: “If there is a unit in a SEZ facing the domestic market, it will behave as 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. “

Why are the changes needed?

The government’s decision to relax SEZ standards stems from the fact that a number of them are operating at below normal levels and have suspended operations despite the proliferation of such entities at a rapid pace.

Parliament passed the SEZ Law in 2005 with the aim of attracting foreign direct investment (FDI) and creating a competitive and hassle-free environment for companies engaged in the export of goods and services. Since then, the government has given formal approval under the SEZ Act 2005 to 426 SEZs and in principle clearance to 33 SEZs, Moneycontrol reported citing the Commerce Department.

However, as of September 30, only 268 units were operational across the country, employing 2.36 million people.

According to Financial Express, the policy has benefited those in the service sector, while companies in the manufacturing segment have languished.

Meanwhile, ministries of trade and finance often disagree over tax incentives given to SEZ units. In 2018, an expert committee led by Bharat Forge President Baba Kalyani recommended significant changes in SEZ policy, calling for separate rules and procedures for manufacturing and service SEZs.

As the Commerce Ministry rewrites the legislation, the Finance Ministry is likely to announce the simplification of SEZs in the budget, showing better collaboration between the two wings.

Struck by the COVID-19 pandemic, companies operating in such conclaves have called for help. Outbound shipments of manufactures and commercial services from SEZs to India were down 21% to Rs 2.46 lakh crore in FY21 compared to the period last year, at a time when The country’s overall merchandise exports fell 3% to Rs 21.54 lakh crore, Financial Express reported citing data from the Export Promotion Council.

The changes in standards will help SEZs affected by Covid to make better use of their spare capacity. The Ministry of Commerce is also working out the modalities allowing companies to be partially de-recognized so that their areas can be used for other purposes.

“If a SEZ wishes to be de-recognized, even that could be allowed,” the ET report said, citing a source. The changes could allow SEZs to offer additional commercial and residential operations on their premises, the source said.

The new standards would also be in line with recommendations from the expert committee led by Baba-Kalyani, which said changes are needed to revitalize these areas in order to meet the $ 1 trillion merchandise export target of India by 2027-2028.

(Edited by : Thomas abraham)

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