DTA fabs will get lower benefits

NEW DELHI: Most chip fabs are likely to chose Special Economic Zones over Domestic Tariff Areas. Though the government announced a 25% cash incentive, units inside DTAs will be able to avail of only 15% incentive, the rest being lost in import duties. The government is expected to cut import duty to 10% this budget. Units inside DTAs will have to pay import duty unlike units in SEZs, where they will be exempt.

Over and above the import duty, fabs in DTAs will have to pay 4% Special Additional Duty (SAD) and 2% education cess. Thus fabs are likely to adopt the SEZ model, where the government will provide 20% cash incentives. For instance, the $3.5 billion SemIndia proposed chip fab is planning to apply for an SEZ status. "

"Though a window has been opened for attracting investments, the two models are not on par. Countervailing duty will be exempted in DTAs. Still, the differential will be large due to SAD and import duty. Thus we plan to apply for an SEZ status for our project," said Ajay Jalan CFO SemIndia.

"SEZ model will be beneficial for businesses which want to avail of single window clearance which will be unlikely in DTA. The government has announced only 20% incentive in SEZs as against 25%, demanded by the industry. It is a dampener, but has not killed the spirit. I am sure the government will find means to increase the amount in future," Indian Semiconductor Association President Rajendra Khare said.

The centre's policy has also ignited the states to announce incentives. SemIndia has committed to set up a fab near Hyderabad, but Kerala plans to steal it away. "We are planning to announce a separate policy over and above centre's incentives and will invite SemIndia to locate their fab in Kerala," a Kerala government official had told ET.

When asked on SemIndia's plans to move to Kerala, Mr Jalan said: "It's highly unlikely. Still, we will wait and watch on the state's incentives." On the other hand, US-based Network Systems and Technologies (NeST) is in talks with Kerala to set up a $5 billion fab in the state.