Govt may Change SEZ Rules to Ease Compliance Burden

The government plans to amend the SEZ Act in the upcoming Budget to reduce the compliance burden and allow companies operating within the conclaves to accept payments in Indian rupees, according to two people familiar with the development.

The government could also allow entities that don’t wish to avail benefits to be treated on a par with others located outside the SEZ, said two people aware of the development.

Several stakeholders have raised concerns that as tax holidays come to an end, many companies will move out of SEZs due to the restrictions and these places could end up as ghost towns.

“Many companies that have leased properties inside SEZs are looking to move out as there is a huge compliance burden, including that around net foreign exchange earning obligation. Although the infrastructure within SEZs is very good, for most companies, it doesn’t make economic sense to continue operations,” a person aware of the development said.

The government is looking to make these changes in the upcoming Budget that will lead to companies not having to show import revenues or submit detailed operational information.

As a corollary, the companies could continue to operate from SEZs like any other place without having to comply with all the elaborate compliance requirement.

The commerce ministry is already working on such a proposal, another person aware of the development said.

“If any SEZs wishes to be de-re-cognized, even that could be allowed. The government could also bring in a change whereby SEZs could offer additional commercial and residential holdings within their premises,” the person said.

Many SEZs had sought an extension of the direct tax holiday, especially on account of the Covid-19 pandemic.

The primary attraction of setting up entities within an SEZ was the favorable taxation structure.

Many SEZs had even approached the government to discuss the tax sops this year, but the government didn’t relent.

“The government representatives told us clearly that no tax sops or tax exemptions are possible this year,” a person part of an industry association that met the government said. An email sent to the ministry of commerce and industry did not elicit any response till press time on Monday.

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