Exempt export units from 'sunset clause' to boost trade: SEZs to govt

They say frequent change in govt policies has led to 'trust deficit' in such export promotion zones and affected fresh investments

Exporters of goods and services from designated export-oriented units (EOUs) and special economic zones (SEZs) have urged the government to exempt export-centric and employment-generating units from the sunset clause, to boost exports of goods and services from India.

In a letter addressed to the Union Finance Minister Arun Jaitley, the Export Promotion Council of EOUs and SEZs said that frequent change in government policies has led to a ‘trust deficit’ in such export promotion zones, affecting fresh investments from domestic and overseas investors.

Introduced in 2005, the SEZ Act had attracted huge investments in its initial years. But then, the Congress government levied Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) in 2012. These levies worked as a speed breaker for capital inflows into these zones, which were initially planned to be tax free.

Source: Export Promotion Council of SEZs and EOUs

“Sudden change in the government policy restricted capital inflow into EOUs and SEZs. After achieving an annual investment inflow of $43.52 billion in 2012-13, there was a slowdown in subsequent years. But, again, during 2016-17, the capital inflow hit a level of $65.27 billion. The investment inflow will jump by leaps and bounds if the government gives us a long-term policy,” said Vinay Sharma, Acting chairman, Export Promotion Council of EOU & SEZ.

Exports of goods and services slumped to $70.79 billion in 2015-16 after achieving a high of $87.55 billion in 2012-13, but recovered to reach $80.76 billion in 2016-17.

Meanwhile, exporters fear that the sunset clause, proposed by the Union Finance Minister, would withdraw all incentives offered currently to export oriented units in SEZs and EOUs by 2020. This means, they would have to pay the same tax a manufacturer or a service provided pays in the domestic tariff area (DTA).

“EOUs and SEZs have made available all the facilities required for setting up of a business unit including infrastructure, customs house and banks within the notified area. Also, SEZ Act has also mentioned an exit clause for units. Even foreign investors can approach us to have all facilities in place without any hurdles. But, we require a stable policy from the government to retain investors’ trust,” said Sharma.

Meanwhile, import of goods into SEZs or EOUs either from overseas or from the DTA attract nil duty. But, exports to DTA from SEZ attract the effective rate of duty. However, exports to overseas are duty-free.

The implementation of goods and services tax (GST), however, has worsened business environment in the SEZs and EOUs, as units outside these notified areas do not want to sell their goods to the units within. This is because manufacturers inside these zones are required to either purchase goods with applicable GST from buyers or pay the levy from their own books. 

Sellers outside the EOUs and SEZs do not want to claim input credit under GST, as it blocks working capital for months. This is why SEZs and EOUs business has been badly affected under the GST regime, said Sharma.

Currently, goods exported from SEZs attract nil duty while services suffer 18 per cent.