Commerce Ministry proposes to cut tariffs, MAT on SEZ units

Commerce department has come up with the proposal that tariffs and minimum alternate tax (MAT) levied on Special economic zones (SEZ) should be brought down. SEZs may soon get a boost with the government considering two proposals to revive these once much sought after enclaves that are struggling without fiscal benefits. SEZs contribute about a quarter of the country's exports but several licences were surrendered after the two taxes were levied .The proposals are expected to be discussed on October 7, when officials of the commerce ministry and trade councils will discuss the ways to boost exports.

Units in SEZs, which were set up with the objective of attracting foreign investment and boosting exports, are also allowed to sell products manufactured in such zones in the domestic market. India can import almost 200 kinds of electronic hardware without paying the custom duty under the Information Technology Agreement. Though, manufacturers of these goods in SEZ selling them in the local market have to pay almost 28 per cent in duties.

Currently, goods from SEZs which are sold in the domestic market are levied an import duty which puts them at disadvantage compared with the goods which are imported through free trade agreements. SEZ units face competition from goods being sold in DTA (domestic tariff area) through the free trade agreement route due to the difference in the duty. Besides customs duty, SEZs have also been hit by MAT and dividend distribution tax, which were imposed in 2011.

The commerce department wants MAT of 7.5 per cent to be levied on manufacturing SEZs from the existing of 18.5 per cent. Reduction in MAT in manufacturing SEZs will benefit those in the auto components, garment manufacturing, ceramics and computer parts sectors located in Chennai, Noida and Kerala. 

Exports from SEZs declined to Rs 4.63 lakh crore in 2014-15 from Rs 4.94 lakh crore in 2013-14.