SEZs keen on FTA rates, commerce ministry working on proposal

New Delhi: The commerce ministry is working on a proposal to allow special economic zone (SEZ) units to sell products outside these tax-free enclaves at concessional duty rates.

An SEZ area is considered to be a foreign territory for trade operations and duties and are mainly set up for the export purpose.

However, goods can be supplied from an SEZ unit to a DTA (domestic tariff area or outside SEZ) buyer on payment of appropriate Customs duty as products coming from these zones are treated as imports into the country.

The SEZ players have demanded that they be allowed to sell their goods in DTA on same terms as applicable under free trade agreements (FTAs) signed by India with different countries.

In essence, they want that the benefit of low or nil duty under an FTA should be extended to their products sold in domestic markets.

India has signed several FTAs with countries, including Japan, Malaysia, Asean (the 10-nation South East Asian bloc) and South Korea, under which it permits imports of a host of goods at a significantly low or nil duty.

"Such a decision would help boost the manufacturing sector of the country. Although SEZs are treated as foreign entity for trade purposes, they are set up within the country and they employ local people," an official said.

The issue was recently discussed by the commerce ministry.

However, experts take the line that domestic manufacturers would lose competitiveness if SEZ units are allowed to sell products at concessional duties.

Export Promotion Council for SEZ and EoUs (EPCES) Chairman Rahul Gupta stressed that the proposal would not affect domestic manufacturing as SEZ units use local raw material for manufacturing and also provide jobs here.

"SEZs should be allowed to sell their goods at best FTA rates to increase manufacturing in these zones," he suggested.

After imposition of minimum alternate tax (MAT) on SEZs, investors started losing interest to invest, which the commerce ministry is trying to revive.

The SEZs enjoy 100 per cent income tax exemption on export income for the first five years, 50 per cent for the next five and 50 per cent of the ploughed-back export profit for another five years.

Exports from SEZs grew nearly 12 per cent to Rs 5.24 lakh crore in 2016-17.

Data showed that as on March 31, these zones have attracted investments worth Rs 4.23 lakh crore and generated employment for 17.31 lakh people.

States such as Tamil Nadu, Karnataka, Telangana and Maharashtra are home to the highest number of operational SEZs.

Till May 1, the government has approved as many as 421 zones, of which 218 are operational.