Proposals related to imposing export obligation, scrapping tax benefits and doing away with the 5,000-hectare cap on the size of special economic zones are on the agenda of the empowered group of ministers on SEZs which is scheduled to meet on Monday.
The EGoM is headed by External Affairs Minister Pranab Mukherjee. Commerce Minister Kamal Nath and Finance Minister P Chidambaram as members.
If approved, many proposals will have a significant impact on the SEZ policy, which came into force in February 2006. A crucial finance ministry proposal -- to be discussed by the group -- is imposing an export obligation in excess of 50 per cent on developers and units that will be eligible for duty and tax benefits.
At present, SEZs have to be a positive net foreign exchange earners to enjoy the benefits of zero duty. The Ministry of Commerce is of the view that SEZs have been complying with the net foreign exchange earner clause and imposing an export obligation will be a step backward.
The finance ministry has also proposed doing away with income tax benefits to SEZ developers and units. This, it says, is leading to huge revenue forgone.
The SEZ Act of 2005 provides for total tax exemption to SEZs for first five years, 50 per cent for the next five years and exemptions on profits that are reinvested for another five years.
SEZ developers and units will closely watch the decisions taken by the EGoM on these issues. "If the finance ministry's proposals are accepted, it is as good as scrapping the SEZ Act," said a Delhi-based analyst.
Other proposals include relaxing norms on infrastructure development in non-processing area as well as service tax exemption for SEZ developers for services rendered outside the zone.
The EGoM will also discuss a commerce ministry proposal to relax the 5,000-hectare cap on the area of SEZs. The limit was imposed by the EGoM in April 2006 in the backdrop of violent protests in Nandigram over acquisition of farm land.
The commerce ministry feels that with the revised Relief and Rehabilitation Policy, notified in October 2007, and the proposed amendments to the Land Acquisition Act of 1894, the cap can be relaxed on case to case basis.
India's great rush for SEZs