Taxing time for tax-free enclaves

The ongoing economic crisis has affected SEZ development work.

While recognising the performance of special economic zones (SEZs), the Economic Survey 2008-09 has called for checking “proliferation” of the tax-free industrial enclaves without offering any reasons.

In 2008-09, exports from the zones expanded by 36 per cent and stood at Rs 99,688 crore. This accounted for 13 per cent of India’s total merchandise exports (in rupee terms) in the same year. Overseas sale of Indian goods in rupees had expanded by 17 per cent in the year under consideration.

After the SEZ Act was enacted in 2006, incremental employment in the zones stood at 2,52,735 till March 2009 while incremental investment stood at Rs 98,498 crore.

Currently there are 568 formally approved zones with land under possession, of which 318 are notified and eligible for tax benefits.

“The benefit derived from SEZs are evident from exports, employment and investments generated,” the survey noted.

The ongoing economic crisis has impacted the SEZ development work as prospective clients have deferred expansion plans. Moreover, with cost of borrowing remaining high, developers are adopting a wait-and-watch policy as well.

While many developers have asked for extension of time for developing the zones, some developers like DLF and K Raheja Universal have already scrapped their projects.

The recent relaxation of External Commercial Borrowing (ECB) norms, and allowing SEZ developers to access funds abroad is likely to kick-start the construction of the deferred projects.