Easier norms fail to kill SEZ denotification queue

Written by Kirtika Suneja | New Delhi | Updated: Aug 29 2013, 13:49pm hrs
Despite recent norms aimed at reviving investor interest in special economic zones (SEZs), developers continue to queue up for denotification. Seven such pleas will be considered by the board of approval (BoA) under the commerce and industry ministry on August 30.

The largest SEZ that will come up for denotification belongs to the Kalyani Group, which has asked the BoA to reduce the notified area of the multi-product SEZ from 1,000 hectare to 100 hectare and retain the balance 100 hectare as a sector-specific engineering and electronics SEZ.

The developer cited poor demand for plots in the SEZ and an adverse impact of minimum alternate tax (MAT) and dividend distribution tax (DDT). While MAT is applicable at the rate of 18.5% of the book profit after April 1, 2011, the DDT was levied from June 1, 2011 on dividends distributed by SEZ developers at 16.22%. The commerce ministry expects denotifications to continue despite the relaxations as states like Maharashtra have started allowing units to develop 40% of the industrial areas for non-industrial purposes like residential colonies and other commercial activities.

Uttam Galva Steel, the country's second-largest galvanised steel manufacturer, too, has approached the government to surrender its two SEZs in Maharashtra.

The developer had planned two sector specific SEZs for IT/ITES in Raigad, Maharashtra, which were notified in 2009. For both the de-notifications, the developer has cited general recession in the biotechnology sector and local disadvantage.

States like Maharashtra have more attractive schemes for the exporters and we expect denotifications to continue because we have eased the exit norms for units. They only have to refund all the duty concessions like service tax, customs, state duties and excise concessions. Besides, the co-developer also has to agree for the denotification, said a commerce department official.

Till now, 576 SEZs have been approved, out of which 392 have been notified. A total of 173 SEZs have commenced export, of which 20 are multi-product SEZs. Till July 31, 2013, 58 have been denotified, most of which have happened in the last two years because of the imposition of MAT and DDT. The reasons given by the developers for de-notification include a global economic slowdown, poor market response, non-availability of skilled labour force, lack of demand for space and changed fiscal incentive regime for SEZs.

In fact, the ministry now seeks a no-objection certificate from the state government where the denotification is happening and the state has to write back saying that the land will be returned.

As per the new SEZ norms, the multi-services zones will be treated on a par with single-product SEZs, with the minimum area being slashed to half from 100 hectare.

This will allow multi-product SEZ developers with a minimum land requirement of 500 hectare to set up multi-services SEZ on an additional 50 hectare.

The exit route has also been simplified with the rules allowing the unit to exit the SEZ by transferring its assets and liabilities to another by transfer of ownership or sale of the SEZ. Moreover, no minimum area is required for setting up an IT or ITeS SEZ but a minimum built up processing area is mandated based on the category of cities.

The other projects that have applied for denotification are Orient Craft Infrastructure's two SEZs in Haryana, Vatika Jaipur's IT SEZ in Rajasthan and Suncity Haryana SEZ Developer's IT SEZ in the state.