GS Paper - 3 (Economy)

The government on 1 February 2022 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'. The existing SEZ Act was enacted in 2006 with an aim to create export hubs and boost manufacturing in the country.

Why it will replace

  1. 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.
  2. Industry has time and again demanded continuation of tax benefits provided under the law.
  3. 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.
  4. Presenting the Budget 2022-23, the Finance Minister 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.
  5. This will cover all large existing and new industrial enclaves to optimally utilise available infrastructure and enhance competitiveness of exports.
  6. The government will also undertake reforms in customs administration of SEZs with a view to promote ease of doing business.

Flashback

  1. 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 31 March 2020.
  2. As on 27 January 2022, the government has given formal approvals to 425 SEZ developers. Out of this, 268 were operational till 31 December 2021.
  3. An expert committee led by Bharat Forge Chairman Baba Kalyani, that was formed in 2018 to review the SEZ policy, has already submitted its report, recommending significant changes in the SEZ policy, including the formulation of separate rules and procedures for manufacturing and service SEZs.