Government to take up repair work of SEZ rules soon
The commerce ministry will announce rules to simplify and rationalize procedures to revive special economic zones, hoping to draw investors to these enclaves once touted as centres of export excellence.
The changes, which will be notified in a week, could include a reduction the minimum-area requirement, easier vacancy and contiguity norms and allowing multi-product SEZs in sector-specific zones.
"There will be reforms and changes in policies pertaining to SEZs mainly to simplify procedures and make things easier. These will be notified by the end of the month," commerce secretary Rahul Khullar told ET.
Experts have welcomed the rethink on SEZs, which had caught investor fancy when they were announced five years ago but subsequent policy changes and other hurdles made them a non-starter.
"With the government going back on its promise of not imposing any taxes on SEZs for the first few years, the least that it can do now is to make implementation projects easier," a Delhi-based SEZ consultant told ET.
Finance minister Pranab Mukherjee had slapped a 18.5% minimum alternate tax, or MAT, on SEZ units and a 15% dividend distribution tax in this year's budget, leading to a sharp drop in new proposals and an increase in the number of withdrawals.
While approvals fell to 14 in during April to November last year from 25 in 2010 and 36 in 2009 periods, withdrawal of SEZ applications increased to 28 in the eight-month period from 27 and 19 in the previous two fiscal years.
"This (MAT and dividend tax) has affected cash flows and has resulted in a fall in net margins to 4-4.5%, from 7-8%, says R Sonthalia, a Kolkata-based SEZ owner.
The ministry has the power to make changes in SEZ rules as long as they do not have anything to do with taxes. "The SEZ Act empowers the commerce department to bring about any changes in rules and procedures as it deems fit by coming up with an appropriate notification," an official explained.
Since land acquisition is one issue that corporate India is struggling with, the proposed changes are likely to relax rules related to purchase of land. According to a discussion paper put out on the official website, the minimum land requirement for multi-product SEZs is proposed to be reduced from 1,000 hectares to 250 hectares and for multi-services and sector-specific ones from 100 hectares to 40 hectares.
A lower size threshold will allow SEZs to begin operations with smaller land parcels and expand as and when more land is available.
The definition of vacant land, the type of land on which SEZs have to be built, is likely to be relaxed. Flexibility in contiguity norms in areas where production activity is not taking place is also in the offing.
Other issues being considered by the commerce department include giving incentives to developers to build SEZs in areas away from cities and allowing some tax-breaks to SEZ units for selling in the domestic market.
Source: economictimes.indiatimes.com
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