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Ministries Bury Differences, Find Common Ground, Policy on SEZs

Companies planning to set up Special Economic Zones (SEZ) can continue with their plans without worrying about land regulations.

The ministries of commerce and finance, who were at loggerheads on the proposed amendments to the SEZ Act, have found a common ground on contentious issues like land requirement norms and sectoral broad-banding.

According to a senior commerce ministry official, there is “a cent per cent meeting of minds” and the commerce and revenue secretaries will meet in the next few weeks to finalise the policy.

At present, the minimum land required to set up a multi-sector SEZ is 1,000 hectare while that for a sector-specific SEZ is 100 hectare. Free trade warehousing zones are required to have minimum 40 hectare and those for IT-ITeS, gems and jewellery. 10 hectare.

Sources said across all these categories, the minimum land norm is set to be relaxed and for multi-product SEZ, the new threshold could be 250 hectare. This is expected to help a large number of SEZs which are under the threat of de-notification for want of the land area, required under policy. The two ministries have reconciled to the fact that considering the difficulty in acquiring large tracts of land in many parts of the country, the minimum area norm needs to be relaxed.

The finance ministry, which has over the last couple of years become skeptical of SEZs apparently due to the huge revenue foregone for the scheme, has veered around the view that given the need to spur investments and regain the economy's growth momentum, a lenient approach may be taken with regard to these tax-free enclaves.

“Discussions for finalising the policy are on and all suggestions are welcome. We are presently engaged in inter-ministerial consultations for finalization of a proposal for the SEZ policy,” one official said, without divulging further details.

The need for a re-look at the policy has become more pronounced as the growth in exports from SEZs sharply declined from over 121 % in 2009-10, 43.11 % in 2010-11 to only 15.39 % in 2011-12. Moreover, there has been a significant increase in the last two financial years in the number of applications for de-notification of approved SEZs. Thirty-seven of the total 46 de-notifications of SEZs having been approved in 2010-11 and 2011-12. This is in addition to the number of withdrawal applications for formal and in principle approvals granted to SEZ projects.

Finance ministry's opposition arises mainly from the fact that if the minimum area requirement is reduced what will developers of the 386 notified SEZs and the nearly 200 formally approved ones do with the surplus land that they acquired with government backing at below market rates. Besides, as per the finance ministry, there are a large number of SEZ projects that acquired land at very low rates and received either in principle or formal approvals but were not notified yet.

The finance ministry withdrew the exemption from Minimum Alternate Tax for SEZ developers and units effective April 2011 and waiver of Dividend Distribution Tax (DDT) for SEZ developers was also revoked effective June 2011.

This has dented investor confidence. In the last six years, formal approvals have been granted for setting up 588 SEZs out of which 386 have been notified.


Financial Express, New Delhi, 12-09-2012



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