Govt may ask SEZs to export 51% of output

New Delhi : The Government is considering a proposal to make it mandatory for special economic zones (SEZs) to export at least 51% of goods and services they produce. Currently, these zones, hit by the imposition of minimum alternate tax (MAT) and dividend distribution tax (DDT) in 2012 Budget, need only to be postitive net foreign exchange (NFE) earners over a period of five years from the start of operations.

The Commerce Ministry has begun consultations with stakeholders on the new proposal, said sources. The proposal, in fact, was first put up in August 2012 by Public Accounts Committee (PAC) headed by BJP leader Murli Manohar Joshi.

The panel had said since SEZ units enjoy considerable tax benefits and are expected to fuel economic growth, the misuse of the SEZ scheme must be prevented by revisiting the policy and plugging the loopholes in implementation. It said in the SEZ Act, which came into force on February 2006, there was no requirement of undertaking exports and it whittled down the primary objective of the Act which was to promote exports and thereby boosting forex earnings.

The Finance Ministry had objected to the “positive NFE norm”, saying it will not result in more exports from SEZs as units that are not importing any inputs will not be obliged to export in this case.

Explaining the 51% norm, officials said: “If an SEZ unit imports inputs worth $100 and sources another $900 worth goods from India, then by taking into account a 10% value addition over the total input cost of $1,000, the production would be worth $1,100. As per the positive NFE norm, the SEZ unit would need to export only $101. But with the 51% norm, this would mean a much higher export obligation of $561 (or 51% of $1,100). However, if a unit chooses to import inputs worth $1,000 and does a value addition of just $1, the export obligation would be slightly lesser at $510.5.

“Such a move would only result in lesser value addition and sourcing from within the country. With SEZs reeling under taxes such as MAT and DDT, a move like this could be the final nail in the coffin,” an official said.

Source : dailyshippingtimes.com