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Cabinet clears Central legislation for SEZs

Our Bureau

New Delhi , Jan. 7

THE Union Cabinet on Wednesday approved the Commerce Ministry's proposal to enact a Central legislation on Special Economic Zones (SEZs) to provide a hassle-free and competitive duty-free milieu for promoting exports, besides "signalling stability in the policy regime."

Addressing a news conference, the Union Commerce and Industry Minister, Mr Arun Jaitley, said the concept of SEZs would now be attractive to investors. Complemented by a competitive fiscal package and improving infrastructure with minimum regulatory regimes both at the Central and State levels, SEZs would become an "engine for economic growth and a world-class production base for the country."

The Minister, who mooted the concept of a Central legislation in his maiden Export-Import (Exim) Policy in March 2003, said Cabinet clearance to enact such legislation meant an assurance redeemed to trade and industry. He was full of praise for other Ministries, particularly the Finance Minister, Mr Jaswant Singh, for "agreeing to incorporate the revenue regime with the Central legislation."

Stating that the extant incentives and facilities, such as exemption from customs/excise duty for development of SEZs and setting up of units, exemption from income tax, Central Sales Tax and service tax, are reflected in the proposed legislation, Mr Jaitley said there would be "limited domestic market access" on the basis of duty foregone.

While there is no change in the 100-per cent income-tax exemption for five years, the 50 per cent tax exemption for 2 years would be made available for 5 years after the legislation is enacted. The extant 50 per cent tax exemption on re-investment of profits for 3 years is proposed to be extended to 10 years. Even as computer software units in SEZs are eligible for tax exemption, the proposed legislation would notify services.

For offshore banking units (OBUs) and units in International Financial Services Centre (IFSC) being set up in SEZs, the existing 100 per cent tax exemption for 3 years would be extended for 5 years, and 50 per cent tax exemption for 2 years would become 80 per cent tax exemption thereafter.

The proposed tax exemption to OBUs and IFSCs would help make India a hub of global banking and financial services, he said. Funds would be available at international rates to SEZs and domestic industries to create employment and upgrade skills in regard to global banking transactions.

In order to attract long-term investments to develop infrastructure in SEZs, it is proposed that no tax on distributed profits be levied on companies engaged in development, operation and maintenance.

Proposing a single window clearance at the zone level, the legislation aims at strengthening one-stop clearance at the zonal level, with all matters pertaining to SEZ units and developers being covered under one rule for greater transparency. The legislation also proposes establishing an authority in each SEZ, which would accord financial and functional autonomy to the zone's administrative set-up, and to plan its development in respect of zones set up by the Central Government. The legislation also envisages setting up special courts and single enforcement agency to ensure speedy trial and investigation of offences committed in SEZs.

Mr Jaitely said the Government had so far sanctioned 23 SEZs in the private/joint/state sectors. He said the contribution of SEZs in total exports was likely to be higher this year, as last year it had registered a hefty 23 per cent growth. Even in the first eight months of the current fiscal, exports from SEZs amounted to Rs 8,542.22 crore, as against Rs 10,056.62 crore in 2002-03, he said.

In response to a query about labour laws for the SEZs, he said there have been enabling provisions for the States providing for flexibility in this regard.

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