Deferred SEZ norms confuse traders

EXIM MATTERS

The finance ministry has again postponed implementation of new rules and regulations for Special Economic Zones (SEZ) to January 1, 2004, spreading enough confusion in the trade.

The latest postponement by a month is the third since the new rules and regulations were notified in July-end for implementation from August 15.

It appears the finance ministry objected to amendments to 'Allocation of Business Rules', restricting any role for it in the SEZs.

The commerce ministry, in its emotional attachment and zeal to replicate the Chinese SEZ models, wants to create its own kingdoms in different parts of the country, where separate legal framework and judicial system will work.

Conceptually, the draft SEZ bill envisages that kings (designated as Development Commissioner) will rule over each SEZ under the guidance and inspiration of the emperor (designated as Commerce Minister).

The draft SEZ bill envisages freedom from all types of taxes for SEZ developers and SEZ units and freedom from any type of interference from any regulatory authorities, save the Development Commissioner.

The commerce ministry is anxious to introduce the Bill in the current Parliament session and make it effective as early as possible through an ordinance.

It is also pushing through approvals for twenty-six SEZs in various parts of the country.

By and large, the trade is oblivious to the possible adverse consequences of the SEZ Bill but there is enough support for the view that a hassle free environment will help boost India's exports.

The Bill comes at a time when the excise and customs officers and labour unions are discredited and the businessman is seen as the savior.

So, few voices are heard except that of those who represent the trade. The individual entrepreneurs and even corporates contemplating investments, however, want to wait and watch.

Astute finance managers look at the trade-offs between depreciation and income tax holiday, Cenvat credit and duty free procurement from local units, the industry rates of Duty Drawback and Duty Entitlement Passbook scheme available on deemed imported inputs basis and duty free imports, etc.

Unlike in the past, when the government used to develop the Export Processing Zones, private parties, whether on their own or in collaboration with state governments, will develop the SEZs.

Unlike China, the land and infrastructure has to be funded not through tax money but through equity and loans.

The SEZ units will have to pay for the maintenance and interest costs besides loan repayment obligations and profits of SEZ developers.

To what extent the costs for infrastructure will offset the other fiscal benefits that SEZs offer is not too clear at the moment.

Moreover, the benefits of tax exemptions have to be evaluated in the context of falling import duties and other tax rates.

Meanwhile, the finance ministry has amended the SEZ rules and regulations, appointing 'officers of Customs', limiting their jurisdiction to SEZ-related goods within eight kilometre radius and limiting the functions of the security officers to those that are specifically assigned by the Customs officers.