The Ministry of Finance is reportedly considering allowing SEZ units to sell goods in the domestic market on a ‘duty-foregone’ basis through an executive order. This policy shift, if implemented, would permit SEZs to pay only the duties foregone on raw material inputs used in production rather than full customs duties on finished goods.
Addressing Long-Standing Demand
The proposal, mooted by the Commerce Department, comes amid growing concerns over the declining attractiveness of SEZs, particularly after the rollout of the minimum alternate tax (MAT) and the phasing out of direct tax exemptions. Industry stakeholders have long urged the government to ease the tax burden on SEZ units to enable competitive pricing vis-à-vis domestic manufacturers.
A source told BusinessLine, “It has been a long-standing demand of SEZs that they be allowed to sell in the domestic tariff area (DTA) on a duty-foregone basis instead of paying import duty on finished items. This will help reduce costs and improve market competitiveness.”
Pending Legislation Spurs Executive Route
While the SEZ Amendment Bill, which includes the duty-foregone provision, is still awaiting passage, officials believe a quicker route would be to implement the measure through a government notification. “An amendment to the SEZ Act may take time, but a shorter route is to get it done through a notification,” the source added.
Industry Seeks Parity
The Export Promotion Council for EOUs and SEZs has consistently advocated for this reform. Under the proposed mechanism, the duty imposed on domestic sales by SEZ units would correspond to the raw materials used for manufacturing rather than the finished product’s value.
Regulatory Revamp Continues
This initiative is part of the government’s broader strategy to streamline SEZ operations and boost domestic manufacturing, particularly in strategic sectors like semiconductors and electronics. The government has been increasingly relying on executive orders to revise SEZ rules in order to sidestep lengthy legislative processes.
As the Finance Ministry deliberates on the proposal, stakeholders remain hopeful that the move could provide a much-needed fillip to SEZ-led exports and domestic integration.
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