Niti Aayog objects to certain provisions in proposed DESH bill: Report

Niti Aayog has raised objections to certain provisions pertaining to the proposed DESH bill, which seeks to replace the existing law for special economic zones, sources said.

In the Union Budget 2022-23, the government had proposed to replace the existing law governing Special Economic Zones (SEZs) with a new legislation to enable states to become partners in 'Development of Enterprise and Service Hubs' (DESH).

Sources said that the Aayog has concerns on provisions of the proposed bill such as partial de-notification of zones; and removal of NFE (net foreign exchange earning) requirement.

It would be difficult to give duty concessions with NFE requirements and in absence of land contiguity, it would be difficult for customs to keep track on activities in the zone, they said.

The Aayog has suggested the ministry to reconsider those provisions, one of the sources said, adding the department of revenue too has objected to some provisions.

The commerce ministry has proposed a host of direct and indirect incentives such as deferral of import duties and exemption from export taxes to revamp SEZs through the new legislation.

The existing SEZ Act was implemented in 2006 with an aim to create export hubs and boost manufacturing in the country. However, these zones started losing their sheen after imposition of minimum alternate tax and introduction of sunset clause for removal of tax incentives.

These zones are treated as foreign entities in terms of provisions related to customs. Industry has time and again demanded continuation of tax benefits provided under the law. Units in SEZs used to enjoy 100 per cent income tax exemption on export income for the first five years, 50 per cent for the next five years and 50 per cent of the ploughed back export profit for another five years.

In the Budget 2016-17, the government had announced that the income tax benefits to new SEZ units would be available to only those units which commence activity before March 31, 2020.

As on November 22, the government has given formal approvals to 424 SEZ developers, out of which 270 are operational.

During April-October this fiscal, exports from these zones rose by about 29 per cent to about Rs 6.94 lakh crore.

It was about Rs 10 lakh crore in 2021-22 as compared to Rs 7.6 lakh crore in 2020-21.

Presenting the Budget 2022-23, finance minister Nirmala Sitharaman had said: "The Special Economic Zones Act will be replaced with a new legislation that will enable the states to become partners in Development of Enterprise and Service Hubs (DESH)." This would cover all large existing and new industrial enclaves to optimally utilise available infrastructure and enhance competitiveness of exports.