Finmin to tighten norms for failed SEZ developers

NEW DELHI: Developers of the special economic zones (SEZs), who used to bag big-ticket duty concessions in the Exim policy every year, will find the going tough if they decide to shut shop.
The finance ministry is in the process of working out a mechanism to recover duties from the developers who are de-licensed. “We need to have enough safeguards, at least in the long run, to ensure that the onus is on the SEZ developer to fork out duties in case he finds operations to be unviable,� said a senior finance ministry official.
One of the options being explored by the revenue department is to formulate a set of rules for SEZ developers who are de-licensed. Under the present dispensation, the developer only executes a bond or an undertaking. The system of a bank guarantee, which can be encashed in any eventuality, is not in force as it is perceived to push up transaction costs.
The commerce ministry grants a letter of permission to the developer after the application is cleared by the Board of Approval (BOA). The approval is valid for three years within which the developer would have to implement the project. The validity can, however, be extended on a case to case basis.
Developers of SEZs are permitted to import or procure goods free of duty for development, operation and maintenance of the zone. Services provided to the developers of SEZ units are exempt from service tax. The finance ministry has now agreed to exempt SAD on sale of goods from SEZs and EOUs to consumers in the domestic market (subject to some conditions) and provide ‘duty entitlement pass book’ (DEPB) scheme benefits for supplies from domestic tariff area to SEZs.
SEZ developers are also allowed a 100% tax deduction on export profits for 10 years as well as an income tax holiday for a block of 10 years in 15 years under Section 80 (I) A of the Income Tax Act. The benefits would, however, be available only on completion of the project.
The government is now toying with the idea of having virtual SEZs by extending all the benefits of the SEZ to stand-alone EOUs. Keeping in view the revenue implications of these measures, the finance ministry is keen on formulating norms that would make SEZ developers more accountable, more so if they wind up operations.