Com­merce dept mulls job work to help SEZs

The Financial Express - - FRONT PAGE - Banikinkar Pat­tanayak

AS ex­ports con­tinue to shrink, the com­merce depart­ment has asked the fi­nance min­istry’s rev­enue depart­ment to al­low spe­cial eco­nomic zones (SEZs) to do job work for do­mes­tic firms lo­cated out­side such zones — at least for ex­port pur­poses — so that they can utilise their mas­sive idle ca­pac­i­ties.

The com­merce depart­ment feels such a move will help SEZs not just in bad times like these but also in lean or­der sea­sons in good years as well, sources told FE. “Even in a good year, the flow of sup­ply or­ders from abroad typ­i­cally slows for a while af­ter Christ­mas, re­sult­ing in unutilised ca­pac­i­ties at the SEZs. How­ever, do­mes­tic de­mand for fin­ished goods re­mains ro­bust even af­ter Christ­mas,” said one of the sources.

Cur­rently, many of the SEZs are op­er­at­ing at 70% of their ca­pac­i­ties due to sub­dued global de­mand and the im­po­si­tion of an 18.5% min­i­mum al­ter­nate tax (MAT) on SEZ de­vel­op­ers and units and a div­i­dend dis­tri­bu­tion tax (DDT) on such de­vel­op­ers.

Some SEZs have been forced to op­er­ate at even less than 60% of their ca­pac­i­ties, one of the sources said.

As part of its ef­forts to pro­vide a leg-up to SEZs, one of the six pri­or­ity ar­eas iden­ti­fied by the com­merce min­istry ear­lier this month to re­verse a per­sis­tent slide in the coun­try's ex­ports, the com­merce depart­ment has also sent afresh pro­pos­als to the rev­enue depart­ment ask­ing it to scrap MAT and DDT for SEZs. It has also asked the rev­enue depart­ment to al­low SEZs to sell prod­ucts in the do­mes­tic mar­ket at con­ces­sional tar­iff rates (the low­est rates at which In­dia im­ports such items from its free trade agree­ment part­ners).

The com­merce depart­ment ar­gues that these are ex­cep­tional times for ex­ports, given the gloomy ex­ter­nal environment, and its pro­pos­als need to favourably con­sid­ered. Ear­lier, the rev­enue depart­ment had turned down such pro­pos­als for var­i­ous rea­sons, the main be­ing the huge “rev­enue losses” to the ex­che­quer to any such in­cen­tives to SEZs — some­thing that has been fiercely con­tested by the com­merce depart­ment.

In­dia's mer­chan­dise ex­ports con­tracted for 16 months in a row through March and recorded a 16% de­cline in 2015-16 to $261 bil­lion.

The gov­ern­ment im­posed MAT on SEZ de­vel­op­ers and units and

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