Special Economic Zone (SEZ) developers and units from Tamil Nadu—the State which refused to support Constitution Amendment Bill to enable Goods & Services Tax (GST) regime in Rajya Sabha-- have expressed concern that this could end all tax advantages for such zones. They have sought changes in the proposed legislation to ensure continuation of benefits.

In a recent representation to the Finance Ministry, the Tamil Nadu Association of SEZ Infrastructure Developers (TASID) sought more flexibility in the definition of `exports’, zero-rating of all domestic levies on supplies to SEZs and non-imposition of IGST (tax on inter-State supplies) on goods imported by the units.

“It is shocking that the current status in the form of exemptions and zero rating for SEZs have not been retained in the main GST law. Unless the SEZ related provisions are grandfathered into the GST, the entire object of SEZs would be defeated,” TASID pointed out in its representation to Finance Minister Arun Jaitley.

The Commerce Ministry is already in discussions with the Finance Ministry on how to retain tax exemptions presently availed by SEZs under the new GST law, but it is the latter which would take the final call on the matter.

As per the SEZ Act, `exports’ also incorporate supplying goods or services from domestic tariff area (area outside SEZs) to a unit or developer and supplying goods or services from one unit to another unit or developer in the same or different SEZ. The broad definition exempts SEZ units from paying taxes when they supply to each other and when units outside the zones supply to them.

The Model GST law, on the other hand, defines ‘export of goods’ to mean taking out of India to a place outside India. “The definition of ‘export’ is absolutely narrow in the GST Law and defeats the entire concept of SEZ,” said TASID adding that the definition of ‘export’ in the SEZ Act must be incorporated in the GST law.

The proposed legislation has no provision for treating supply to an SEZ or inter-supplies within SEZs as zero rated (no payment of excise), as in the SEZ Act. There is also no incentive to supply to an SEZ in the form of drawback payments provided to exporters in lieu of input taxes. “With CGST and SGST / IGST being charged by suppliers, SEZ would no longer be economically viable,” it said.

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