Sub : SEZ BILL CLEARED BY THE CABINET

As you are aware that Government had prepared draft SEZ Bill and this Bill was referred to the Cabinet. Cabinet in turn had referred this SEZ Bill to a Group of Minister (GOM) headed by Shri Pranab Mukherjee, Defence Minister and comprising Commerce & Industry Minister, Finance Minister, Home Minister and Law Minister. GOM had then cleared this Bill and referred it back to the Cabinet. I am happy to inform that SEZ Bill has been cleared by the Cabinet and the Bill is likely to be introduced in this Budget Session of Parliament itself i.e. on or before 13-5-2005.

As we understand there are 3 major developments in the SEZ Bill:-

(i) Finance Bill introduced in the Parliament alongwith the Budget had introduced a Sunset Clause under Section 10A of the Income Tax Act. As per this provision no income tax exemption would have been available to an SEZ unit which would have commenced production on or after 1st April, 2009. This would have negatively affected SEZ Developers and SEZ Units as probably no new SEZ unit would have been set up in the SEZs after 1st April, 2009. It has been given to understand that as per the SEZ Bill, as cleared by the Cabinet, there is no sunset clause and hence the income tax benefit will continue even if the unit is set up in the SEZ after 2009. Once the SEZ Bill is passed this would have the prevailing affect. It may be recalled that immediately after the Finance Bill, I had taken up this issue strongly with the Ministry of Commerce and Hon’ble Commerce & Industry Minister had taken up this issue with the Ministry of Finance and Hon’ble Prime Minister.

(ii) At present income tax benefit is available for a period of 10 years (5 year 100%, 2 years 50% and for the next 3 years 50% of the profit ploughed back)

Draft SEZ Bill has proposed this period to 20 years. However Ministry of Finance was insisting not to increase the time period beyond 10 years and had also introduced the sunset clause of 2009. Now it has been given to understand that the Cabinet has agreed for extending the income tax benefit for a period of 15 years.

(iii) Draft SEZ Bill had provided sale in the DTA based on duty foregone principle to the extent of 30% of FOB value of exports. This was not agreed by the Ministry of Finance. We had made a detailed presentation to Ministry of Commerce on this issue giving the instances of Kyoto Convention and other relevant documents. However, it has been given to understand that the principle of duty foregone has not been accepted in the SEZ Bill and SEZ units will have to pay full import duty. We will continue to pursue this matter further.