Citizens’ Research Collective on SEZ

Rituparna Bhuyan

New Delhi, January 23, 2008: The Empowered Group of Ministers (EGoM) on Special Economic Zones (SEZs), which is scheduled to meet on February 4 after a gap of nearly nine months, will discuss a finance ministry proposal to impose export obligation in excess of 50 per cent on such zones.

External Affairs Minister Pranab Mukherjee heads this group of senior ministers, which includes Commerce Minister Kamal Nath and Finance Minister P Chidambaram.

“The proposal, which was floated by the finance ministry last year, has been referred to the EGoM,” said a government official.

Currently, SEZ units need to be a positive net foreign exchange earner to be eligible for tax benefits under the SEZ Act of 2005. Thus, units with low import intensity need to have lesser exports to become eligible for benefits under the Act.

According to officials, the export obligation idea was mooted to ensure that adequate exports take place from the SEZs as the positive net foreign exchange earning criterion was not enough to ensure that.

The commerce ministry has been opposing the proposal tooth and nail as it feels that all the SEZs are meeting the net foreign exchange-earner criteria. “Moreover, it has been seen that the exports from SEZs are already much higher than the criteria mooted by the finance ministry,” officials said.

Experts feel that any criteria for export obligation will be a retrograde step for the SEZ units.

“Export obligation will put SEZs on a par with export oriented units. Units with less import content would like to concentrate on domestic tariff area as well by paying the requisite customs and excise duties and also the sales tax. This is because SEZs offer a business environment which has far less hassles than a similar venture in the domestic tariff area,” said a Delhi-based SEZ expert.

Experts also point out that any export obligation norm will lead to complicated procedures, which were sought to be removed through the SEZ Act of 2005.

“If the finance ministry proposal is given a go-ahead, the SEZ units may also demand relaxation of norms to sell their products in the domestic tariff area,” they said.

Source: Business Standard