The Commerce & Industry Ministry is trying to convince the Revenue Department to allow non-export manufacturing units that produce only for the domestic market to operate within SEZs to take advantage of the infrastructure available in the zones.
“The Revenue Department is examining the details of the proposal for domestic manufacturing and is yet to give its consent. But the Commerce Ministry is consistently pushing for it as it believes it would not result in any revenue loss for the exchequer while helping manufacturers to improve their efficiency and the SEZs to utilise their excess capacities,” an official tracking the matter told BusinessLine.
According to the proposal, if manufacturing units for domestic sales are allowed to set up shop in SEZs, they will not be entitled to any of the tax benefits that SEZ units get, which includes zero rating of GST. On the taxation front, they will be treated as any other unit in the country outside the SEZ, and their sales in the domestic market will not attract customs duties.
“There are a number of manufacturing units that want to set up shop in SEZs not because of the tax benefits, but for the excellent infrastructure that is present there. The competitive infrastructure with integrated real estate, power and transportation facilities and smooth administrative processes are a big draw,” said the official.
Moreover, most SEZs in the country are operating at low capacities, and allowing domestic manufacturing units will improve space utilisation, he added. With the pandemic-related slowdown hitting business, SEZ developers are keen on taking up more.
Baba Kalyani panel
The proposal was also reflected in the recommendations made by the Baba Kalyani-led committee constituted by the Ministry of Commerce and Industry to study the existing SEZ policy of India. The objectives of the committee were to evaluate the SEZ policy and make it WTO-compatible, suggest measures for maximising utilisation of vacant land in SEZs, suggest changes in the SEZ policy based on international experience and merge the SEZ policy with other government schemes such as coastal economic zones, Delhi-Mumbai industrial corridor, national industrial manufacturing zones, and food and textile parks. The committee had submitted its recommendations in November 2018.
The Commerce Ministry is also considering a proposal made by SEZ developers and units to allow existing SEZ units to sell part of their produce in the domestic market at lower customs duties that are offered to Free Trade Agreement partners such as South Korea or Japan.
“Here, one needs to actually look at the items that are being imported from FTA partner countries and maybe extend the same terms to items from SEZ units. This proposal, too, is being discussed with the Revenue department,” said the official.
There are 265 operational SEZ units and 425 units that have been formally approved in India with a total investment of ₹6,07,679 crore as on December 31 2020, as per government figures. Exports from the SEZs in the April-December 2020-21 period declined 7 per cent to ₹5,53,396 crore (year-on-year).