No sunset on tax holiday for SEZs brings cheer to exporters

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New Delhi, May 5: The Cabinet nod to the long-pending bill on a comprehensive legislation for special economic zones (SEZs) on Wednesday has come as a relief to exporters, who have been waiting for the law to be in place for more than two years.

The main reason for celebration is the removal of the sunset clause introduced in this year’s finance bill stipulating that the tax holiday for units in SEZs will be given only if they start production by March 31, 2009.

However, the deletion of the provision of ‘duty foregone principle’ contained in the draft SEZ Bill for the sale of goods from SEZ to domestic tariff area (DTA) has disappointed some.

Speaking to FE, Federation of Indian Export Organisations president OP Garg said the exporting community welcomed the decision to pass the SEZ Bill as it would give a big boost to SEZs. "Let us hope that the Bill is passed smoothly in Parliament," he added.

Mr Garg said with the removal of the sunset clause on tax exemption, investment in SEZs would go up. As per the proposed SEZ law, units will get a 100% tax exemption for five years and 50% exemption for the next five years. The tax relief will be provided for a block period of 15 years, instead of the draft proposal of 20 years. SEZ units will also get income tax exemption on 50% of ploughed back profits after the tax holiday period.

While appreciating the fact that the enactment of SEZ Act will lead to a quantum jump in exports from SEZs, export promotion council for EOUs and SEZ units, director general LB Singhal pointed out that the provision of ‘duty foregone principle’ should be incorporated in the new bill.

The draft SEZ Bill had provided that if a SEZ unit is selling goods in DTA, it won’t be required to pay duty applicable on the finished product, but would be charged duty applicable on the imported inputs used in the product plus the central excise duty on the finished product.