The government is now planning to approach the process of reforms in the Special Economic Zones (SEZ) ecosystem through a different route and for that it has set up a 17-member committee.

The panel, composed of representatives of the Department of Commerce, Department for Promotion of Industry and Internal Trade, Niti Aayog and Central Board of Indirect Taxes and Customs -will prepare a concept paper recommending a roadmap for the reforms. 

For this the panel will be undertaking a background study on harmonisation of existing export promotion schemes with SEZs. The export promotion schemes that would be in focus include export oriented units (EoUs), MOOWR (Manufacturing and Other Operations in Warehouse), Advance Authorization (AA), Export Promotion Capital Goods (EPCG) and Duty Free Import Authorisation (DFIA).

The terms of reference of the panel also include examining the existing Special Economic Zone Act with a view to assessing their effectiveness in the current global trade, investment environment and macro-economic landscape and harmonisation with other export promotion schemes so that policy distortion, if any, may be addressed.

It will also evaluate the impact of recent and proposed reforms in SEZ policy, including measures relating to Domestic Tariff Area (DTA) sales, fiscal and non-fiscal incentives,compliance requirements and operational flexibilities.

Other areas that will be studied by the panel include effectiveness of SEZs in attracting domestic and foreign investment, promoting manufacturing and services, technology up-gradation, value addition, and employment including for MSMEs.

The terms of reference also include identifying operational, procedural, and regulatory challenges faced by SEZ developers and units, including issues relating to customs, taxation, compliance burden, infrastructure, and coordination among stakeholders.

The SEZ Act of 2005 has always been in the news because of different reasons. From the initial rush, the setting up of new SEZs have come to a halt in the past few years as the tax advantage was withdrawn. 

In 2022, Finance Minister Nirmala Sitharaman had proposed the Development of Enterprises and Service Hubs (DESH) Bill to replace the SEZ Act in her budget speech. It was introduced with the aim of overhauling the SEZ framework to make it more globally competitive and compliant with international trade rules.

After a prolonged consultation process, the idea of the Bill was dropped in favour of smaller amendments to the existing SEZ Act. The discussions on amendments have gone on for a considerable period but the Bill is yet to be introduced in Parliament.

In this year’s budget, however, the Finance Minister relaxed rules for SEZs, allowing them to sell their production in the Domestic Tariff Area or domestic market. The relaxation was provided to help exporting units in these zones to deal with the 50% reciprocal tariffs the US had imposed in India.

The relaxation is yet to be notified and in the intervening period India-US trade deal, US Supreme Court verdict invalidating the additional tariffs and conflict in West Asia have completely altered the situation.