Commerce Ministry plans cut in tariffs, MAT on SEZ units

New Delhil: Special economic zones may soon get a shot in the arm with the government considering two proposals to revive these once much sought after enclaves that are struggling without fiscal benefits.

The commerce department has proposed that tariffs and minimum alternate tax levied on SEZ units that sell goods in the domestic market should be brought down. The proposals may be discussed on Wednesday, when officials of the commerce ministry and trade councils discuss ways to boost exports, which fell 1.23 per cent to $310.5 billion in the year ended March 2015. Units in SEZs, which were set up with the objective of attracting foreign investment and boosting exports, are also allowed to sell products manufactured in such zones in the domestic market. At present, goods from SEZs that are sold in the domestic market are levied an import duty, which places them at a disadvantage compared with goods imported through free trade agreements.

India can import almost 200 kinds of electronic hardware without paying customs duty under the Information Technology Agreement. However, a manufacturer of these goods in an SEZ selling them in the local market will have to pay almost 28 per cent in duties. Electronics is one of the largest categories of imports, with August shipments of $3.44 billion, up more than 2 per cent from a year earlier. "SEZ units face competition from goods being sold in DTA (domestic tariff area) through the free trade agreement route due to duty differential and there is a thinking to replace the latter with SEZ exports," said an official privy to the development.

An expert on the matter said that a notification can be issued under Section 25 of the Customs Act to reduce the rate of duty payable on DTA sale by SEZ units and make it on par with FTA rates. Besides customs duty, SEZs have been hit by MAT and dividend distribution tax, which were imposed in 2011. SEZs contribute about a quarter of the country's exports but several licences were surrendered after the two taxes were levied.

Exports from SEZs declined to Rs 4.63 lakh crore in 2014-15 from Rs 4.94 lakh crore in 2013-14. The commerce department wants MAT of 7.5 per cent to be levied on manufacturing SEZs instead of the existing 18.5 per cent. "MAT reduction in manufacturing SEZs will benefit those in the auto components, garment manufacturing, ceramics and computer parts sectors located in Chennai, Noida and Kerala," said another official.

In November last year, the Comptroller & Auditor General had cited an imbalance in growth in the manufacturing sector and IT/ITES SEZs and pointed out that manufacturing units are discouraged by not being allowed other fiscal benefits. "There was a decline in the activity in the manufacturing sector in the SEZs...56.64 per cent of the country's SEZs cater to IT/ITES sector and only 9.6 per cent were catering to the multi-product manufacturing sector," the CAG had said.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.