Major amendments to SEZ Rules – making SEZs more flexible and relevant?

October 12,2018
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Siddharth Kaul (Director, Ernst & Young LLP, India)
Prasad Kulkarni (Manager)

Background

India introduced Special Economic Zones (SEZ) Policy in 2006 in an attempt to emulate the successful use of SEZs by China for boosting economic activity and exports. However, since then the policy has not had the desired impact. The reasons cited by critics are mainly around aspects such as lack of creation of complimentary infrastructure, flip flops in the tax regime for SEZs (sudden introduction of MAT/ introduction of sunset clause for income-tax holiday /removal of DDT exemption) and other issues like problems with land acquisition at optimal locations etc. Additionally, there has been industry representations on several topics aimed at improving the flexibility and ease of doing business in an SEZ. 

In order to align the SEZ Rules, 2006 with the GST laws as well as for removal of various difficulties faced, a Committee was constituted by the Department of Commerce, Ministry of Commerce and Industry to review the SEZ Rules, 2006 and to make necessary recommendations. Committee’s recommendations were released for public comments and various representations were filed by industry for the betterment of such rules. After considering the representations, the much awaited amendments to SEZ rules were finally released on 19 September 2018. In view of the phasing out of income-tax tax holiday by March 2020, it was important to take certain steps to protect the future of SEZs. We take a look at whether these changes take care of important aspects which would improve flow of investments back into an otherwise apparently unimpressive outlook for SEZs in India.

Welcome changes 

1.       Minimum area

One of the welcome changes include removal of minimum area required (10 hectares) for setting up Bio-technology and Health Sector (excluding hospitals) SEZs subject to the zones meeting the minimum built-up processing area requirements as per category of city.

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