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Finance Ministry against liberal sops to SEZs

Hema Ramakrishnan

NEW DELHI, March 12

THE Finance Ministry is set to curtail give-aways to exporters by asking the Commerce Ministry to either ``rework'' or ``drop'' some of the major proposals mooted by it as part of the coming Exim Policy announcements.

The Commerce Ministry has sought, among others, open-ended customs and excise duty exemptions to developers of Special Economic Zones (SEZ), besides grant of Duty Entitlement Pass Book (DEPB) credit in lieu of deemed export benefits to supplies from Dom estic Tariff Area (DTA) to SEZs.

The Revenue Department, however, may consider restricting the facility of full duty waiver only to two core commodities _ cement and steel _ to infrastructure developers in the Special Economic Zones (SEZ).

The Commerce Ministry had, in fact, made out a case for across-the-board duty waiver for SEZ promoters as part of its pre-Budget wish-list to the Finance Minister, Mr Yashwant Sinha. This was, however, turned down in view of the huge revenue implications involved.

The draft policy, prepared by the Commerce Ministry has mooted that ``the promoters of Special Economic Zones in the private, State and joint sector may be allowed to import or procure goods for the creation of infrastructure in the zone without payment of customs or excise duty''.

On their part, Finance Ministry officials pointed out that the proposed duty waiver can, if at all, be given only to specified items. Besides, even these would have to be linked, in some way or the other, to export commitments.

``Rather than an open-ended duty exemption for all types of materials used in the construction of an SEZ, the Finance Ministry may examine the case for waiver only on core items such as cement and steel,'' officials said.

To stimulate demand in these two commodities, the Finance Ministry may further attach a rider saying that the duty exemption (excise, in this case) would be available only on procurement from indigenous manufacturers.

An import duty waiver for all kinds of goods, including capital equipment, used to set up SEZ units and their offices has also been sought by the Commerce Ministry.

Besides these duty exemptions, the Commerce Ministry has also proposed that ``the supplier from the Domestic Tariff Area (DTA) to the Special Economic Zone (SEZ) should have the option to claim Duty Entitlement Pass Book in lieu of deemed export benefit' '.

The Revenue Department is set to reject the proposal as DEPB credit is only available on physical exports. Officials also maintain any switchover would also entail a higher revenue outgo to the exchequer.

The annual outgo on a plethora of export incentive schemes works out to over Rs 15,000 crore.

The recommendation to accord DEPB credit to DTA suppliers is, in fact, linked to one of the most important proposals in the Exim Policy pertaining to a change in the very definition of export.

Export is currently defined as ``taking out of India any goods by land, sea or air'' under the existing Foreign Trade (Development and Regulation) Act, 1992.

The Commerce Ministry has now proposed that DTA supplies to SEZs should also be included in the definition. It has also sounded out the Finance Ministry to amend the Customs Act 1962 to align it with the proposed changes in FTDR Act.