The overhaul of the Special Economic Zones (SEZs) policy being planned by the government may see sops for the zones being linked to employment generation against the current fiscal-based incentives.
“The group of eminent persons constituted by the Centre to study the SEZ policy and suggest changes, in its first meeting on Friday, stressed on the need to ensure that the zones led to generation of employment, which is one of the biggest challenge for the economy,” a government official told BusinessLine .
Bharat Forge’s Baba Kalyani, who chairs the group on SEZs, suggested a shift from fiscal incentives to employment-based incentives, re-framing of the boundaries and introducing grandfathering clauses for existing provisions, the official added.
“The idea is that while incentives for SEZs would be linked to generation of employment so that more labour-intensive zones come up, the present investments would not be hurt as existing provisions would be grand-fathered and new provisions would apply only on future investments,” the official said.
The details of the employment-based incentives have not been fleshed out yet by the committee, and more clarity is to emerge by the next meeting in July, the official added.
Commerce & Industry Minister Suresh Prabhu, who also attended the meeting, asked the panel, comprising industrialists, State-government representatives and Commerce Ministry officials, to come up with its report by the end of August.
The Export Promotion Council for EoUs and SEZs, which represents the interest of SEZ developers and units, earlier expressed its disappointment for not being included despite representing the actual stakeholders.
At present, SEZ units get 100 per cent income tax exemption on export income for first 5 years, 50 per cent for next five years and thereafter 50 per cent of the ploughed back export profit for next 5 years. However, the exemption comes with a sunset clause to be effective from April 1, 2020.
SEZ developers, on the other hand, get income tax exemption for a block of 10 years in a period of 15. The sunset clause for developers is already effective from last year. SEZs also get exemption from import duties and local taxes.
MAT, dividend tax issues
Although, initially, the SEZs were exempt from the Minimum Alternate Tax and Dividend Distribution Tax, they were introduced in 2012 and 2011 respectively, leading to protests from the SEZ community.
Many SEZ developers have given up their investment plans over the past years stating that the introduction of MAT and DDT had brought in instability and made returns unattractive. “Although the Commerce Ministry has been trying to persuade the Finance Ministry to remove MAT and DDT from SEZs, the issue continues to be unresolved,” the official said.
Prabhu has asked the panel to review the entire eco-system of SEZs and suggest changes to make the policy simple and transparent with a view to remove regulation in industry to revive the spirit in SEZs without compromising on environmental concerns.
While some of the employment-based incentives, to be considered by the panel, may continue to be fiscal in nature, the government could also consider sharing a part of expenditure on employees undertaken by the SEZ units, the official explained.
The other industrialist members of the panel include Ravindra Sannareddy, MD, Sricity SEZ; Neel Raheja, Group President, K Raheja Group; Anita Arjundas, Managing Director, Mahindra Life Space Developer; Ajay Pandey, MD and Group CEO, Gift City SEZ Ltd; Srikanth Badiga, Director, Hyderabad Phoenix Developer; and Anil Misra, MD Tata Steel SEZ Ltd.
Principal Secretaries of Gujarat, Maharashtra, Telangana, Andhra Pradesh, Tamil Nadu and Karnataka, and the Additional Secretary and Director in charge of SEZ in the Department of Commerce are also members of the group.
There are a total of 223 operational SEZs in the country as of March 2018 with 5,146 approved units. Total investments of ₹4,74,917 crore have flown into the SEZs so far creating jobs for 19,77,216 persons.