Warehousing zones to push trade hub

THE NEW RULE BOOK

The government announced a new scheme to set up Free Trade and Warehousing Zones (FTWZs), which are aimed at making India a global trading-hub. The Foreign Trade policy (2004-09) announced also provides service tax exemptions to export oriented units (EOUs).

Special economic zones (SEZs) were left untouched in the policy, as the department of commerce would be bringing in a separate legislation on the issue, said Commerce and Industry Minister Kamal Nath.

Units in the FTWZs will qualify for benefits as applicable for SEZ units. The zones will create trade-related infrastructure to facilitate the import and export of goods and services with freedom to carry out trade transactions in free currency.

Foreign direct investment would be permitted up to 100 per cent in the development and establishment of the zones and their infrastructural facilities, said Nath. Each zone would have a minimum outlay of Rs 100 crore and 500,000 square metres built up area.

Explaining the rationale behind the setting up of these zones, DGFT G K Pillai said, "the intention is to bring an international trading hub right on our shores so that our local industries can make purchases easily without having to travel abroad".

Pillai clarified that no manufacturing activity would be permitted in these zones. "The main activity here would be trading. however activities like repackaging would be permitted". Pillai said two such zones could come up on the east and west coast of the country.

"The announcement will give a fillip to warehousing in the country," said Ficci Director General Amit Mitra. It would also build pressure to develop infrastructure like roads and ports in order to service the warehouses, he added.

On EOUs, the government has made a number of announcements in the five year foreign trade policy announced today. They have been exempted from service tax in proportion to their exported goods and services, in line with the thinking that the country should not export its taxes and make its goods and services uncompetitive in international markets.

They have also been permitted to retain 100 per cent of their export earnings in Export Earners Foreign Currency (EEFC) accounts and import of capital goods has been allowed on self-certification basis for them. Income Tax benefits on plant and machinery have been extended to domestic tariff area units which convert to EOUs.

For EOUs engaged in textile and garments manufacture, leftover materials and fabrics up to 2 per cent of cost in freight value or quantity of import shall be allowed to be disposed of on payment of duty on transaction value only. Minimum investment criteria shall not apply to brass hardware and hand-made jewellery EOUs. This facility already exists for handicrafts, agriculture, floriculture, aquaculture, animal husbandry, IT and services.