DESH Bill may let companies have obligation of choice: Govt official

This may ensure no single mandatory export commitment

The Development of Enterprises and Services Hub (DESH) Bill, 2022, might ask companies to commit to only one of the criteria — investments, breakthrough technology, job creation, and exports — that would eventually augur well for the economy and spur growth, people aware of the matter said.

The Bill, which is currently a work in progress under the department of commerce, seeks to replace the existing special economic zone (SEZ) law.

A senior government official told Business Standard that the government would allow companies the “flexibility” to meet any one of these objectives, according to their choice. It would also ensure that there is no “single” mandatory export obligation for these companies, thereby making the proposed law compliant with World Trade Organization (WTO) rules. 

The DESH Bill would mention the broad categories, and the commitment in each category and other crucial details would be firmed up by the commerce department. It would be rolled out as part of the rules once the Bill gets Parliament’s approval.

“Companies setting up units will either have to give commitments towards making a certain amount of investment, creating a certain number of jobs, exporting goods worth a certain value or introducing new, or breakthrough technology. The government will give them the flexibility to choose any of these. This will ensure that they get some tax benefits offered under the law, while also giving back to the economy,” the official said.

Besides, it can put an end to the finance ministry’s concern that units may declare themselves SEZs to postpone Customs duty payments in the absence of any export obligation or NFE criteria.

“Consultation with the industry is also being conducted on the matter,” the official said, adding that the ideas will be discussed with the finance ministry before weaving it into the Bill.

Under the existing law, it was mandatory for units in SEZs to achieve positive net foreign exchange earnings —the value of exports has to be more than the value of imports. Such units received certain subsidies and tax exemptions from the government for having a positive NFE and this resulted in a dispute at the WTO over three years ago.

The commerce department finalised the first draft of the Bill in June but the revenue department objected to it over the proposed fiscal incentives and the Bill being excessively flexible in integrating development hubs with the domestic market. This could result in domestic tariff area (DTA) units seeking these benefits and them relocating to these hubs due to the working capital advantage they would get from deferment of taxes under the DESH Bill, the revenue department apprehended. In that case, goods could then be sold primarily to the domestic market, rather than being exported, it said.

Announced in the Union Budget earlier this year, the DESH Bill seeks to set up “development hubs” for promoting economic activity, generating employment, integrating with global supply and value chains and maintaining manufacturing and export competitiveness, developing infrastructure facilities, and promoting investments, including in research and development (R&D). Such hubs will also include existing SEZs.

The Union Cabinet’s approval would be sought once both departments are on the same page over the Bill.

Making it enticing

• The broad categories on which commitment may be sought are investments, breakthrough technology, job creation, and exports
• Units to have the ‘flexibility’ to opt for any one of the categories
• Parameters of the commitment and other details would be firmed up by the commerce department and rolled out as part of the rules
• Obligation of choice would help make the proposed law compliant with WTO rules
• It would allay the finance ministry’s concerns over lack of export obligation under the revamped SEZ law