Time to bring some pizzazz to SEZs

The government is trying to revive investor interest in special economic zones (SEZs) that are not keeping pace with an overall boom in merchandise exports after having lost tax privilege. Since 2020, new SEZs do not receive a graded 15-year income-tax (I-T) holiday as part of a government effort to plug revenue exemptions, and in order to be compliant with World Trade Organisation (WTO) requirements. On the other hand, new manufacturing units anywhere in the country now pay a reduced corporation tax as the country pivots to import substitution. Yet, the potential of SEZs is considerable, and the government is right in planning a raft of incentives to keep them in play. The principal benefit could be the ability of units located in SEZs to sell in the domestic tariff area at a lower levy than the regular customs duty that they do now. The idea being the equalisation levy will neutralise advantages that units in SEZs enjoy over their competitors who pay domestic tariffs.

The draft legislation is also proposing to allow unused parts of SEZs to be denotified, thereby freeing up idling real estate, single-window clearance for ease of doing business in these enclaves, and an arbitration mechanism for settling commercial disputes. Domestic sales could be encouraged through easier rules governing contract manufacturing.

States are being looped in by allowing them to set up oversight boards for SEZs.


The clutch of non-tariff benefits being considered should lower India's import dependency by allowing SEZs to cater to both foreign and domestic markets. Incentivising investments in technology and employment generation would be a good way of being compliant with the WTO dispute settlement ruling that prohibits subsidies based on export performance. The net foreign exchange earning criterion that was at the root of the trade dispute with the US can be relaxed without worsening the business case of SEZs.