Make 51% exports from SEZs compulsory: FinMin

Make 51% exports from SEZs compulsory: FinMin

New Delhi: The finance ministry has proposed that companies located in special economic zones (SEZs) mandatorily export at least 51% of their production of goods and services.

Since SEZs enjoy “considerable tax benefits", they must be “export-oriented to further economic growth", the finance ministry said before the public accounts committee (PAC), headed by Bharatiya Janata Party leader Murli Manohar Joshi, which has also supported the view. The existing rules, which only require SEZ companies to have a positive net foreign exchange earnings over a period of five years, are insufficient and have diluted the primary objective of the SEZ Act.

The PAC report on action taken by the commerce and finance ministries on observations made in its 24 February 2011 report on SEZs was presented in the Parliament on Thursday.

The committee had in an earlier report observed that out of overall exports of 7,149.23 crore made by 22 SEZ units, actual exports to countries outside India was only 1,999.27 crore, or 28%, and the remaining 72% were related to earnings domestic tariff area (DTA), or area within India. The committee had recommended restricting sale of goods by SEZs in domestic tariff area by an appropriate scale for the purpose of calculating net foreign exchange earnings in order to reduce the misuse of the scheme.

Vikram Bapat, executive director at PricewaterhouseCoopers, India, said it is difficult to fathom the unnecessary focus on exports from SEZ units. “SEZ policy is not an export-oriented policy, it is an infrastructure augmenting policy," he said.

In its submission before the PAC, the finance ministry said the value of inputs and services provided to SEZs from the domestic tariff area against export obligations under export promotion schemes be also considered as imports into SEZs.

The commerce ministry opposed the view, saying such a change will result in SEZ units importing goods from outside India.

Since DTA units are eligible to import goods for the purpose of exports from outside India, sourcing supplies from within India will save foreign exchange outgo, the commerce ministry said.

The commerce ministry also contested the finance ministry’s argument that SEZ units are put at a substantial advantage over their DTA counterparts, saying that SEZ units do not enjoy many schemes meant for DTA units such as Export Promotion Capital Goods and Duty Entitlement Passbook scheme, among others.

The PAC, however, rejected the commerce ministry’s view that the present mechanism is sufficient for monitoring the proper implementation of the SEZ policy.

It said that the government needs to establish an effective and reliable oversight mechanism for monitoring net foreign exchange earnings achievements for prompt recovery of duty foregone and also to provide deterrent penal provision for wilful default. At present, the SEZ scheme relies mainly on self-certification of the SEZ units for net foreign exchange earnings.

So far, 589 formal approvals have been granted for setting up of SEZs, out of which 389 have been notified, according to the commerce ministry. As on 31 March, more than 2,01,874.76 crore has been invested in the SEZs directly employing 844,916 people.