Budget 2022-23: New law to replace existing Special Economic zones Act

To enable the ease of doing business in SEZ units, the government will also undertake reforms in customs administration of SEZs and make it fully IT driven.

In a move to enhance exports, the government will rewrite a new law to replace the existing Special Economic zones (SEZ) Act, finance minister Nirmala Sitharaman said on Tuesday.

The new legislation will enable the states to become partners in ‘Development of Enterprise and Service Hubs’ and will cover all large existing and new industrial enclaves to optimally utilise available infrastructure and enhance competitiveness of exports, Sitharaman said in her Budget speech.

SEZs are areas within the country that have different economic regulations and are considered foreign territory. They not only aid foreign investment, but are export hubs as well. Companies operating in such zones get tax sops from the government and also pay lower tariffs when the goods are exported and not sold outside these zones.

The current legislation is over 16 years old. According to industry officials the legislation was framed under different circumstances and a lot has changed since then. Rules are complicated and there is also a need to make it World Trade Organisation (WTO) compatible.

The department of comments has already taken inputs from the industry and export promotion council. The process of drafting the new legislation has already begun and should be done in a few months.

Bhuvnesh Seth, chairman of Export Promotion Council for EOUs and SEZs (EPCES) said that the SEZ sector was being overlooked for a long period of time after withdrawal of direct tax benefits. We welcome the government's attention for resolving long pending issues through a new Act. EPCES will be working closely with the Department of Commerce , Department of Revenue , State Governments along with SEZ developers and units and other stakeholders in framing the new legislation,”Seth said.

To enable ease of doing business in SEZ units, the government will also undertake reforms in customs administration of SEZs and make it fully IT driven and function on the Customs National Portal with a focus on higher facilitation and with only risk-based checks. “This reform shall be implemented by 30th September 2022,” the finance minister said.

“Integration of ICEGATE with SEZ customs and it's being fully IT driven with a focus  on  higher facilitation  and  with  only risk-based  checks will further  improve ease of doing business in SEZs. It is a welcome step. In fact , EPCES had conducted a feasibility study through Ernst & Young consultant last year for this integration. This was also a long pending demand of the SEZ exporters community,”Seth said.

In the past, an expert committee led by Bharat Forge Chairman Baba Kalyani was formed to review the SEZ policy. It  has already submitted its report, recommending significant changes in the SEZ policy, including the formulation of separate rules and procedures for manufacturing and service SEZs.