SEZs may be partly stamp-duty free

NEW DELHI: The Centre is likely to partially yield to state governments’ demand and allow stamp duty to be levied on the non-processing areas of the special economic zones (SEZs).

But the suggestion by the empowered committee of state finance ministers to allow state taxes on all goods consumed in the non-processing area is unlikely to make the cut, sources told ET.

“The non-processing area is as much a part of an SEZ as the processing area. It is required to support the zone. There is no logic behind imposing taxes in the non-processing area while giving exemptions in the processing area,” a ministry official said.

Moreover, once materials, for instance steel or cement, come into the zone, it would be difficult to ascertain whether it is being used for construction in the processing area or the non-processing area, the official added.
“It will needlessly lead to complications,” he said.

Initially, the commerce department was planning to exempt SEZs from stamp duty. But with land prices soaring, the states do not want to lose out on this important source of revenue. “The Centre is likely to listen to this particular demand made by states,” the official said.

While the SEZ Act has been passed by Parliament and SEZ rules have been framed, the rules are modified from time to time through official notifications to accommodate valid interests of stakeholders. Earlier, finance ministers of states had said they wanted to impose all taxes like stamp duty and value-added tax among others on the non-processing area.

The Centre is also planning to allow states to ask developers to furnish bank guarantees for the stamp duty exemption given to them. This will help the state governments recover the exempted amount if the SEZ does not get notified or the land is used for some other purpose.

The matter was discussed in a recent meeting between commerce department officials and state government representatives. SEZs in India functioned from November 1, 2000, to February 9, 2006, under the provisions of the Foreign Trade Policy, and fiscal incentives were made effective through the provisions of relevant statutes.

The Special Economic Zones Act, 2005, was passed by Parliament in May 2005, which received Presidential assent on June 23, 2005. The SEZ Act, 2005, envisages key role for the state governments in export promotion and creation of related infrastructure.