Ministry proposes changes in SEZ rules

New Delhi: The commerce ministry has proposed measures to make it easier for developers to exit special economic zones (SEZs) that have been struggling with a contraction in global demand for goods produced at the tax-free enclaves.

Specific provisions for the denotification of SEZs have been been put up for public comments till Thursday, after which they would be formally notified.

The ministry proposes to appoint zonal development commissioners (DCs) whom developers would approach for approval or denotification of SEZs. They would in turn send their recommendations to the Board of Approval, which developers have until now been approaching directly.

Seven out of an existing 20 development commissioners would be given the additional responsibility of zonal DCs.

“This will substantially reduce the burden on the Board of Approval and save valuable productive time though the ultimate decision-making power remains with the Board of Approval,” said Hitendra Mehta, head of law firm Vaish Associates, based in Gurgaon near New Delhi.

The draft notification also proposes to insert provisions for denotification of SEZs, which had until now been at the discretion of the Board of Approval. Now developers who may wish to close down their tax-free zones will have to approach the zonal DC, who will send the proposal to the commerce ministry with recommendations.

SEZs, which are required to be net foreign currency earners to qualify for fiscal incentives, have been hurt by the global downturn and contraction in demand for domestic goods and services. As a result, many developers have approached the Board of Approval to denotify their tax-free enclaves. Till date, the Board of Approval has accepted the denotification requests of 10 SEZ developers.

Present SEZ rules specify that an SEZ has to be operational within three years without defining an operational SEZ. Now the ministry has proposed to make an insertion in the SEZ rules saying that if at least one SEZ unit is operational within the zone, then the SEZ need not apply for an extension of the formal approval.

The draft notification also proposes to include a provision that the minimum built-up area within such a zone has to be constructed within 10 years from the date of notification of the zone, with at least 50% of the area to be constructed in five years. This applies to select product zones such as information technology, pharmaceuticals and biotechnology, which require a minimum area of 10ha of land.

The ministry has also proposed to promote agro-based SEZs by reducing the minimum area requirement from 100ha to 40ha.

“The proposed amendments are intended to clear doubts of SEZ developers,” said L.B. Singhal, director general of export promotion council for export-oriented units and special economic zones.