Budget 2022: Reforming SEZ Act to enhance competitiveness, says industry

The government will rewrite a new law to replace the existing SEZ Act as it seeks to enhance exports, FM Sitharaman said on Tuesday.

Reforming the 16-year old SEZ (Special Economic Zone) Act will boost exports, enhance competitiveness and remove anomalies in a sector that has been overlooked since the withdrawal of direct tax benefits, said officials at manufacturing firms and export promotion council. 

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, they said.

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

According to Anil G Verma, executive director and president, Godrej & Boyce the reforms in customs administration will support both the SEZs as well as other manufacturers in the domestic tariff area. “Our SEZs are vulnerable to both disruptions in the global supply chain and also the emphasis on domestic sourcing that we increasingly see overseas.”

“The proposed new legislation for SEZs with states as partners coupled with heightened emphasis on the seven engines under PM Gati Shakti initiative should pave way for a new India that is recognized for its Speed, Productivity and Scale; thus, boosting the country’s overall investment attractiveness and export competitiveness,” said Baba N Kalyani, chairman and managing director, Bharat Forge.

Kalyani headed an expert committee to review the SEZ policy and submitted its report in November 2018. It  recommended significant changes in the SEZ policy. It included the formulation of separate rules and procedures for manufacturing and service SEZs.

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.

SEZs 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 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.

The department of commerce 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.

“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,” Bhuvnesh Seth, chairman of export promotion council for EOUs and SEZs said.

“The SEZ Act along with growth in the IT sector catalysed the development of the commercial real estate sector during the last decade and new SEZ changes are keenly awaited,” said Amit Bhagat, CEO & MD, ASK Property Investment Advisors.