Tamil Nadu SEZs want easy NFE rules to lure foreign cos aiming to relocate

Special Economic Zones (SEZ) developers in Tamil Nadu have urged the Centre to recalibrate the Net Foreign Exchange Earning (NFE) rules in order to attract companies that are looking at relocating their manufacturing facilities to India. SEZs in the State estimate a loss of around 15-20 per cent of export value owing to the Covid-19 scenario.

Various countries are looking at relocating their supply chains in the backdrop of Covid-19 and there is a need to get ready for the opportunity that is coming up. These supply chains are being sought to relocate to countries like Vietnam and India and some are even eyeing Mexico. The SEZs say India needs to have some policy changes in line with the current business reality, though the country is in the right spot to attract investments.

"Under the existing rules, when services are supplied in the Domestic Tariff Area (DTA), the payment in rupees or dollars is accepted and taken as exports earnings. In product manufacturing, except for ITA equipment which is telecom, anything sold in the DTA isn't considered as export regardless of whether the payment is in rupees or dollars. The same DTA customer can remit dollars and import from Thailand but when he wants to buy from an SEZ in a neighbouring city in India, the supplier will not be able to compute it for NFE purposes, even though he pays duties and tariffs. This goes against the Make-in-India concept by discouraging customers to buy from India itself," said Sunil Rallan, founder president of TASID. 

He added that NFE rules should be recalibrated to ensure manufacturing firms are not covered by these rules as long as they generate jobs and are also exporting.

Besides, a product manufactured in a country with whom India has a Free Trade Agreement will be tariff-free, while the same product made by another SEZ will suffer full tariff. "We are urging the government that instead of giving zero tariff, it should levy tariff on the basis of the 'duty foregone' principle. Under this rule, only the imported components used in the manufacture of the product are charged tariff, not the local value addition that has happened in India," he added.

Total exports from Tamil Nadu SEZs for the last financial year were close to Rs 1.10 trillion. The SEZs have already lost 15-20 per cent of this export value due to Covid-19 and it is estimated that the loss would be around Rs 8,000 crore per month. The service sector may be able to recover some of the loss, but for manufacturing, there might be a demand compression even after the facilities restart operations.

The current protocols are not conducive to social distancing and several hard copies related to transactions are required to be submitted. The Tamil Nadu Association of SEZ Infrastructure Developers (TASID) has urged the Central government to make the approval and compliance process 100 per cent digital, by integrating SEZ online with the national portal of Central Board of Indirect Taxes and Customs (CBIC).

The present system of SEZ online doesn't facilitate exports since DTA exporters supplying goods to SEZ Units are unable to get their export entitlements without having to go through a manual process. Payment of duty online should be made possible. Further, in case of excess payments of imports by a DTA importer, there is no system of refunds. Similarly, there is no system of collecting short duty amounts.

"We request that the approval and compliance process be made 100 per cent digital by integration of SEZ online with ICEGATE system. We request that this system be completed as soon as possible. This matter has been under review for several years withouu any resolution," said Rallan. Indian Customs Electronic Gateway (ICEGATE) is the national portal of Indian Customs of Central Board of Indirect Taxes and Customs (CBIC) that provides e-filing services to the Trade, Cargo Carriers and other Trading Partners electronically.