Govt To Allow SEZs To Open Schools, Hotels, Malls To Outsiders – The Economic Times – 06-Dec-2014

December 11, 2014 - Uncategorized

The Narendra Modi government has decided to give a significant break to India’s beleaguered special economic zones (SEZ), by opening up the use of social infrastructure such as schools, hotels and shopping arcades for outsiders not operating within the zone. The move will make SEZs more attractive for investors and make it more viable for developers to invest in creating such social infrastructure in the non-processing areas of these zones.

After years of resistance to the proposal, the revenue department in the finance ministry has given the green signal to the commerce ministry to lift the bar on outsiders using SEZs’ non-processing areas, said officials aware of the matter. The finance ministry has given up its traditional objection allowing non-SEZ users to access the common social infrastructure built within the SEZ would amount to them enjoying tax-free benefits.

PC Nambiar, chairman of the Export Promotion Council for Export-Oriented Units and SEZs (EPCES), said a notification to do away with the existing restrictions could be issued “anytime soon”. “Nowhere in the world is the use of social infrastructure in SEZs restricted only to SEZ users as the objective is to develop world-class facilities.

Developers get tax sops only for building such infrastructure, not for the expenses they incur on maintaining and operating them,” Nambiar said. “This is a positive step as the infrastructure in SEZs’ nonprocessing areas would become more viable to build and used more efficiently. The government may levy some charges on such users if needed,” said Vivek Mehra, partner (tax and regulatory services), at PwC India.

If a foreigner comes to a hotel in an SEZ, he can’t be denied the right to stay if he’s not visiting the SEZ, said Nambiar. Similarly, he said, local people should be able to utilise the facilities of a school or a hospital inside the SEZ.

Just 196 of 352 notified and 491 formally approved SEZs are currently operational. While most developers have opted to build minimal infrastructure outside the production area due to the restrictions on users, those who have built such facilities within the zones feel it is a waste of money as they are not utilised optimally.

“Most developers are focused on building the processing area where goods and services are exported from, as they see the common social infrastructure built by some players lying under-utilised,” said Nambiar. Though better infrastructure could eventually improve low occupancy rates of SEZs, experts said a larger vision is needed to make these business parks a driver of the Modi government’s ‘Make In India’ campaign.

“These changes are good, but it is time India thinks big to become a global manufacturing hub like China,” said Mehra. “Why can’t we attract automobile makers to SEZs and allow them to sell to the domestic tariff area without levying customs duty on the value added by Indian labour and materials? A lot of automobile makers have set up plants in Thailand instead of India due to this tax treatment,” he said.

“Buying a car made in an Indian SEZ would actually be more expensive than importing it from Thailand due to the concessional sops they enjoy through free-trade agreements,” Mehra said, arguing that India should only tax such domestic tariff area sales to the extent they relied on imported duty-free components.

 

The Economic Times

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