Ministry wants SEZs’ tax sops to continue
There is lack of clarity in the proposed GST regime
The Commerce Ministry has raised with the Finance Ministry the Special Economic Zone (SEZ) sector’s concerns about the lack of clarity in the proposed Goods & Services Tax (GST) regime on the continuation of tax & duty exemptions, official sources said.
According to the Commerce Ministry, many tax and duty incentives have been offered to SEZ units and developers in the current SEZ policy to help them attract investments, and in turn, generate employment and boost exports. Pointing out that the proposed GST regime does not provide clarity on these SEZ-related incentives, the Commerce Ministry sought continuation of the tax and duty exemptions, the sources said.
As per the current norms, SEZs are tax and duty-free enclaves and are deemed to be foreign territory for purposes of taxes, duties and trade. Parliament recently passed the amended GST Bill.
The proposed GST regime will subsume central & state level taxes, and the new model will include a Central GST, IGST for inter-state supplies and SGST for intra-State supplies.
The Commerce Ministry had on Wednesday held a meeting with representatives from Export Promotion Council for Export Oriented Units and SEZs (EPCES), the apex body for SEZs and EOUs. The EPCES — which had asked the consulting firm EY to study the impact of GST on SEZs & EOUs — submitted to the commerce ministry the EY study’s key recommendations.
As per the commerce ministry, incentives offered to SEZ units include duty-free import and duty-free domestic procurement of goods for development, operation and maintenance of SEZ units. SEZ units are also exempted from Central Sales Tax (CST), service tax and State sales tax. These incentives should continue, it said.
Maintain sops
Incentives offered in the present SEZ-related policy to SEZ developers include exemption from customs/excise duties for development of SEZs for authorised operations approved by the SEZ Board of Approval, besides exemption from CST and service tax. These exemptions also should be maintained in the GST regime, the ministry said.
Rahul Gupta, vice chairman, EPCES, said there was no clarity in the model GST law on customs & excise duty exemptions available to SEZs for export & import activities.
Also, currently there is no excise duty on raw material procurement by SEZs from Domestic Tariff Area (or DTA, which is the area outside the SEZs but within India) as such procurement is treated as exports from DTA to SEZ. Besides, procurement by SEZs does not attract CST and even Value Added Tax (states such as Tamil Nadu do not levy VAT on such transactions, while many other states do not grant VAT exemption to SEZs for the same).
Zero ratings
The relevant provision in the model GST law which specifies the kind of supplies that can be zero-rated (where there is no tax on supplies & where suppliers will be eligible to claim input credit) should include supplies from DTA to SEZ, the EPCES said , adding that the model GST law should be amended to this effect.As on June 7, 2016, there were 329 notified SEZs, of which 204 are operational. As on March 31, 2016, SEZs have attracted Rs.3.76 lakh crore worth of investment and provided employment to nearly 16 lakh people. Exports from SEZs in FY’16 were Rs.4.67 lakh crore.
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