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Government mulls new norms, tax sops to revive Special Economic Zones boom [India]
The Times of India ^ | April 23, 2012 | The Times of India

Posted on 04/22/2012 12:30:24 PM PDT by James C. Bennett

NEW DELHI: It could be a second innings for special economic zones (SEZs), especially those held up for years, with the commerce department proposing fresh tax concessions and a cut in the minimum area requirement to a quarter of the present specifications.

The department has suggested that any zone that is not built around the identified 40, million-plus cities and state capitals would be eligible for duty benefits on capital investment for construction of hotels, hospitals, schools and colleges, residential and business complexes and training, leisure and entertainment facilities in what is billed as non-processing area (NPA) infrastructure. Sources said that the zones will be eligible for the tax concession if they are built 50-100 km from an urban conglomerate and facilities have to be for exclusive use of SEZ employees.

In case of SEZs constructed in 123 backward districts, this infrastructure can also be used by those who are not part of the zone, a 48-page note said. At present, the rules specify that NPA can't exceed half the area of an SEZ.

In addition, the department wants to extend the benefits of export schemes to SEZ units, that are already available to entities outside the zone, to make up for the levy of minimum alternate tax and other tax concessions that were withdrawn by finance minister Pranab Mukherjee last year.

Further, nearly half the funding available under Aside, a scheme to build infrastructure for exports, may be allocated for building connectivity and infrastructure in SEZs.

Amid a flurry of SEZ development, which many had termed as real estate activity, the government decided to withdraw tax concessions and phase out several of them. According to the commerce department, since February 2006, 585 SEZs have been approved and 381 have been notified, with a majority of them related to information technology and IT-enabled services.

Exports from SEZs are in of Rs 3 lakh crore and account for over 28% of the shipments from the country. In all, over Rs 2 lakh crore has been invested in SEZs so far and over 7 lakh people are employed in development and running of the zones and companies located there.

The number could have been much more but several projects ran into land acquisition hurdles. To tide over the land problem, the commerce department has proposed not just cutting the minimum area requirement but also changing the rules for contiguity. If the department's proposal goes through, a multi-product SEZ could be built over 250 hectares instead of the minimum floor area of 1,000 hectares at present (see table). In case the zones are planned in the special-category states, which include the North East and the hill states, the minimum area requirement is proposed to be cut from 200 hectares to 50 hectares.

Further, within the multi-product zones, more flexibility is proposed to be given in creating sector-specific areas if the land area is exceeded. For instance, if a multi-product developer has 270 hectares, it can have one multi-product zone and two others of 10 hectares each for, say, handicrafts and gems and jewellery. There will also be the option to build four sector-specific zones of 10 hectares each in case a developer has 40 hectares land.

There is concession planned for IT SEZs too with the commerce department suggesting that the minimum land requirement of 10 hectares be done away with. Also, the requirement of one lakh square metres of built-up area would be insisted upon only if the IT or ITES zone is in Delhi (NCR), Mumbai, Chennai, Hyderabad, Bangalore, Pune and Kolkata. In case of 15 category B towns, this requirement is proposed to be fixed at 50,000 square metres and 25,000 for all other cities.

There are other provisions too which are aimed at helping developers tide over the problem of land acquisition. For instance, the commerce ministry has suggested that continuity between the processing area, which houses the manufacturing units and related logistics, and NPA may not be instead upon. "You can have several gates which are manned by SEZ personnel to allay fears related to physical contiguity in case there are highways or water bodies," said an official.

If the move goes through, developers can have over 50-60% of the processing area in one plot of land, while residential quarters, hospitals and schools can be built on another patch even if it is at a distance.

A commerce department official said the land norms were being changed as acquisition had become difficult and the government was trying to push for setting up of the zones in smaller towns and cities.

Table:

SEZ TypeCurrent AreaProposed Increase in Hectares

Multi-product.............1,000..............250

Multi-services.............100...............40

Sector-specific............100...............40

IT/ITES.....................10................0^^

New sectors*...............NA...............10

FTWZs**....................NA...............40

^^ Built-up area restrictions will apply

* IT & electronics, renewable energy, agro-based food SEZs

** Free trade warehousing zones (FTWZs) in multi-product SEZs


TOPICS: Business/Economy; Culture/Society; News/Current Events
KEYWORDS: economy; freemarket; india; taxes

1 posted on 04/22/2012 12:30:33 PM PDT by James C. Bennett
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