Special Economic Zones, or SEZs, are losing their mojo as companies are heading elsewhere due to the “cumbersome documentation” and compliance requirements. Some players in SEZ locations have also raised doubts over the confidentiality of information being shared with authorities regarding their operations, vendors, sources of raw materials and human resource details, says a new report by research firm CBRE.

“These cumbersome documentations include separating domestic and NFE (net foreign exchange) operations, along with the process to be adhered to while migration of employees from existing non-SEZ operations to new SEZ units,” said the CBRE report on SEZs.

“This has resulted in a few long-term occupiers moving out of the existing SEZ spaces to non-SEZ developments after availing benefits in certain cases,” said Abhinav Joshi, Director – Research, CBRE India, who co-authored the report.

Sunset date

Both developers and occupiers get direct as well as indirect tax exemptions under the SEZ policy announced in 2000.

But the approaching sunset date of March 31, 2020, when SEZ tax exemptions will end, is pulling units away from these zones.

The Commerce Ministry has pitched for the continuation of tax incentives for units in SEZs, as well as the removal of Minimum Alternate Tax to boost shipments.

However, there has been no decision on the extension of the sunset date so far. “We can expect some rationalisation in demand for the SEZ space if the sunset date is not extended, as occupiers would like to evaluate options in tech parks and commercial space as well. This would largely be from a business continuity perspective.

“This might impact vacancy levels in SEZs, but mostly in those SEZs, which will get operational post 2019,” said Joshi.

Silver lining

However, a positive for SEZs is the availability of single-ownership, large-floor plates suitable for consolidation. This will continue to attract a select set of companies despite the sunset date, he added.

Anshuman Magazine, Chairman, India and South East Asia, CBRE, said the market has shown good traction. “We are witnessing good demand in all areas, especially in the office-leasing space. Developers are showing interest in SEZs as there is a lot of ‘built-to-suit’ demand coming in. Going by the available statistics and trends, we believe SEZs will account for 25 per cent of total office space coming to India.”

SEZs currently account for about 22 per cent of the total office stock in India across the seven leading cities. Bengaluru, Hyderabad, Delhi-NCR and Chennai house almost 80 per cent of the SEZs.

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