Even as the finance ministry proposed to impose export obligations on industrial units located within special economic zones on Monday, the government has put the brakes on fresh approval and notification of zones beyond the 63 already notified.
The restriction on approvals will apply to even those SEZ projects for which developers have acquired land. In effect, no fresh land anywhere in the country will be notified as an SEZ, regardless of who has sold or acquired it.
This was the key decision at a meeting of the empowered group of ministers, headed by External Affairs Minister Pranab Mukherjee, on Monday. The meeting discussed the export obligation proposal but did not take a final decision.
The finance ministry's proposal involves imposing export obligation of between 35 per cent and 50 per cent on the annual production of units set up within an SEZ to make them eligible for tax breaks. At present, units only have to be net annual foreign exchange earners to be eligible for tax benefits. It is not clear whether SEZ developers, which only develop zones and offer facilities to various companies, will also face the export obligation.
Sources said the proposal for developers to have an export obligation was opposed by members of the E-GoM on the ground that a developer was like a real estate establishment and could not undertake any export activity of its own. "In fact, this proposal took a lot of time to discuss," they said.
A final decision on the issue may be taken when the ministers meet again, possibly in a couple of days. That meeting will also review the decision to not approve any more zones.
There are 237 special economic zones that have been formally approved till date. If the changes are agreed to, the SEZ Act of 2005 and its rules will have to be amended.
Briefing reporters after the meeting, Commerce Minister Kamal Nath described the meeting as "inconclusive". "We just had a general discussion that covered issues of land, rehabilitation of those displaced and the question of a possible misuse of tax incentives that are being given."
Commerce ministry officials added that while a meeting of the SEZ board of approval would be held in the first week of February, it would not take up the 81 proposals that were deferred for consideration. Instead, the meeting is expected to discuss issues relating to the already notified 63 zones.