The government will soon tweak certain fiscal provisions of the special economic zones (SEZ) Act, as it gears up to introduce the goods and services tax (GST) regime in the country, reports Banikinkar Pattanayak in New Delhi. Revenue secretary Hasmukh Adhia chaired a meeting, attended by commerce secretary Rita Teaotia and others, on November 9 to take stock of changes required in the SEZ Act so that such zones, which are already reeling under direct taxes like MAT and DDT, are not subject to undue hassles at least in the new indirect tax regime. Sections 26 and 30 of the SEZ Act are set to be amended suitably in accordance with the GST law to ensure various duty exemptions to such designated enclaves in the new tax regime as well, sources told FE.
Section 26 C, E and G of the SEZ Act are among the key fiscal provisions that will be tweaked, a senior government official said. Section 26C deals with exemption from any excise duty (under the Central Excise Act, 1944 or the Central Excise Tariff Act, 1985) on goods brought from the domestic market to an SEZ to carry out authorised operations by the developer.
Similarly, Section 26 E provides for exemption from the service tax (under chapter-V of the Finance Act, 1994) on relevant sevices provided to an SEZ developer. Section 26 G offers tax exemption to SEZ developers from the sale or purchase of goods other than newspapers (under the central sales tax Act, 1956).
Rahul Gupta, chairman of the Export Promotion Council for EOUs and SEZs (EPCES), said the definition of exports in the model GST law need to synchronize with the SEZ Act to avoid any confusion or dispute. He added that the issues of SEZs will be taken up in the meeting of GST Council. Exports from SEZs dropped 3.3% in 2015-16, recovering from a near 11% fall in the previous year. The country’s overall goods exports shrank a massive 16% last fiscal.
The government had imposed the minimum alternate tax (MAT) on SEZ developers and units and the dividend distribution tax (DDT) on developers in 2011-12. Before the MAT and the DDT were imposed, the growth in exports from SEZs was as high as 121% (2009-10) and 43% (2010-11), far exceeding the increase in the country’s overall goods exports for these years.