Fiscal Developments in India since ; A Special look at SEZ Act. Arvind Kumar, Dept of Revenue, Govt. of India

Transcription

1 Fiscal Developments in India since ; A Special look at SEZ Act Arvind Kumar, Dept of Revenue, Govt. of India 1

2 Fiscal Reforms in India

3 Fiscal framework in India Constitution of India provides mutually exclusive tax jurisdiction between Centre and States (also a third tier Govt.) Constitution provides for Finance Commission for guidance on fiscal matters Both, Union and State Govt. presents tax proposals by way of Budget every year

4 Fiscal contours till 1990s Direct taxes: - very complex, in Income tax was 97.5% for Rs. 20 Lac and above, was brought down to 50% in corporate tax was around 45% - 65% Indirect taxes: - Central Excise Duty (on raw materials only ): major component - This was extended to all goods in 75-76

5 .Contd Indirect Tax Enquiry Report of 1977 recommended MANVAT/MODVAT (started in 1986) Customs Duty: By 1991, peak duty reached 400% and around 10% of imported goods -- >120% State Governments continued to levy sales tax which was not uniform or on principle of tax rebate Entry taxes levied by many States Octroi continues even today

6 Liberlisation, fiscal consolidation, 1991 onwards.. Gulf war led to increase in oil prices, BOP crisis, subsidy burden paved way for liberalisation Tax Reforms Committee recommended rationalisation of taxes; IT was down to 20, 30, 40% (in ) MAT was introduced in MODVAT credit extended to all in In 2000 all rates were merged to be called as CENVAT Peak Customs duty was down to 40%

7 Fiscal reforms since Reforms in Central Taxes continued: STT introduced in 2004; FBT introduced in 2006; IT slab rates to 10, 20, 30%, Peak Customs Duty reduced to 15% in Reforms at State level: - Till 2000 States continued to levy Sales tax (entry 54 of list II) - In 2000, at a meeting of NDC idea of EC was conceived. A resolution constituting EC with all State FMs as members was issued in 2000.

8 .Contd State sales tax on the principle of Value Addition began taking shape Haryana implemented VAT in 2003 VAT structure as agreed by EC, 0%,1%,4%,12.5%, and 10 items out of 45 allowed exemptions In 2005, 14 more States adopted VAT By January, 2008 all States had VAT in place Average growth of VAT revenue has been over 20% Central Govt. Compensated States that fell short of projected revenue CST began to phase out since 2007 (from 4% to 2%)

9 .contd Kelkar Task Force (on FRBM), 2003 recommended next set of reforms as GST Union FM announces road map for GST in budget. Work in GST design and structure begins at EC EC issues First Discussion paper on GST in Nov 2009, highlighting broad design A Constitution Amendment Bill introduced in Lok Sabha on , presently with SFC

10 SEZ Act, 2005

11 Types of SEZ Sector Specific SEZ-units may be set up for manufacture of one or more goods in a sector rendering of one or more services in a sector Multi-product SEZ-units may be set up for manufacture of two or more goods in a sector or goods falling in two or more sectors trading and warehousing rendering of two or more services in a sector or services falling in two or more sectors Other SEZ s SEZ in a port or airport SEZ for Free Trade and Warehousing

12 Number of Approvals of SEZ. (As on ) Number of Formal approvals 583 Number of notified SEZs 380 (7 Central Govt State/Pvt. SEZs) No. of In-Principle Approvals 45 Operational SEZs are multi product SEZs Units approved in SEZs 3,400

13 The SEZ area demarcation The areas falling within the Special Economic Zones may be demarcated by the Central Government or any authority specified by it as- (a) the processing area for setting up Units for activities, being the manufacture of goods, or rendering services; (b) the area exclusively for trading / warehousing purposes; or (c) the non-processing areas for activities other than those specified under clause (a) or clause (b). [no vacant land in the non-processing area shall be leased for business and social purposes such as educational institutions, hospitals, hotels, recreation and entertainment facilities, residential and business complexes, to any person except a co-developer approved by the board: Provided that the developer / co-developer may lease the completed infrastructure along with vacant land appurtenant thereto for such purposes.] (16 th March 2007) [Refer Section 6 of SEZ Act, 2005 and Rule 11, sub Rule (10) of SEZ Rules, 2006]

14 Developer Some important definitions Developer means a person who, or a State Government which, has been granted by the Central Government a letter of approval under sub-section (10) of section 3 and includes an Authority and a Co-Developer; Co-developer "Co-Developer" means a person who, or a State Government which, has been granted by the Central Government a letter of approval under sub-section (12) of section 3; Entrepreneur Entrepreneur means a person who has been granted a letter of approval by the Development Commissioner under Sub-section (9) of Section 15 Manufacture manufacture means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use; and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining;

15 contd Service: Service means a tradable service which are covered under the General Agreement on Tariffs and Services annexed as IB to the Agreement establishing the World Trade Organisation concluded in at Marrakesh on 15 th April, 1994; May be prescribed by the Central Government for the purposes of this Act; and Earn Foreign Exchange Export Means Taking goods, or providing services, out of India from a SEZ, by land sea or air or by any other mode, whether physical or otherwise; or Supplying goods, or providing services, from Domestic Tariff Area to a unit or a developer; or Supplying goods, or providing services, from one unit to another or developer, in the same or different SEZ

16 Exports from SEZs Years Physical Exports ( Rs. Crore) Growth Rate (year-to-year) ,787 52% ,638 93% ,689 50% ,20, % ,15, % (Apr-Dec) 2,60, %

17 Employment and Investment in SEZs EMPLOYMENT (by Units) Incremental Employment under SEZ Act 2005 Total Employment 6,80,604 persons 8,15,308 persons INVESTMENT Incremental investment under SEZ Act 2005 Rs.2,45, cr. Total Investment Rs.2,49, cr.

18 India s Global Trade : Worrisome BoT Deficit Source WTO trade statistics Billion US$ Exports (X) Imports (M) M - X

19 Some Weak Links in the SEZ Growth Story Geographical Concentration of SEZs: Six States, Andhra Pradesh, Kerala, Maharashtra, Gujarat, Karnataka and Tamil Nadu, account for a major proportion of SEZs and 92% of total exports from them. Urban centric growth of SEZs Even within these six States, SEZs are largely concentrated around existing urban agglomerates, leaving the hinterland virtually untouched. Sectoral Dispersion of SEZs: There is a pre-dominance of IT SEZs in the sector, and multi sector SEZs are few and far between. Of the 154 operational SEZs, only 17 are multi product SEZs. IT/ITES SEZs and Petroleum sector Skewed Export Pattern: contribute to the roughly two-thirds of SEZ exports. Non-petroleum manufacturing contributes the balance minority share. Inadequate progress of Manufacturing activity: As reflected in 3 and 4 above, the SEZ sector has not fully addressed the concern of boosting the manufacturing sector in India. Limited number of Operational SEZs: While 583 SEZs have been formally approved as on 24 th February, 2012, only 380 have been notified, of which only 154 SEZs are exporting i.e.

20 Distribution of SEZs in the Country

21 Approved, Notified and Operational SEZs Across States Approved SEZs Notified SEZs Operational SEZs 21

22 Distribution of SEZs across States in India ( Percentage of operational SEZs as on Jan 2012) Kerala 5% Others 15% Andhra Pradesh 25% Gujarat 9% Maharashtra 13% Tamil Nadu 19% Karnataka 14%

23 Others Gems and Jewellery Bio-tech Food Processing Textiles/Apparel/Wool Pharma/chemicals Engineering IT/ITES/Electronic Hardware/Semiconduct or Multi-Product Distribution of SEZs across Sectors (Percentage of Operational SEZs as on Jan, 2012)

24 Challenges facing the SEZs i. Non availability of non-double cropped, contiguous and vacant land for SEZs ii. Changed fiscal regime - imposition of MAT/ DDT; possible changes through DTC. iii. Shortcomings in Single Window Mechanism and coordination across departments at the Central and State Government level. iv. Large number of States not having an SEZ Policy / Act v. Slow pace of development of infrastructure within the SEZs and external support infrastructure vi. Non availability of incentives for SEZs under schemes such as FPS, FMS, DPEB, Duty Drawback, VKGUY etc.

25 SEZ v/s State Government issues Treatment of sale from SEZ to DTA - Section 30 of SEZ Act: such sales are charged Customs Duty, Anti Dumping, CVD etc on their import - Rule 47: Slae to DTA only if import licence and assessment as per Customs Act - Rule 48: B/E to be filed by DTA buyer - HENCE NO VAT OR CST BE CHARGED

26 contd State s stand: - Section 5 of the CST Act, 1956 says CST on movement of goods into the territory of India and not from an SEZ to a DTA - 2(o) of the SEZ Act, 2005 defines import as bringing in goods from a place outside India or receiving goods from another unit of the same SEZ or a different SEZ - Section 30 SEZ Act does not bar additional tax by States (as it is State s power)

27 .Contd Rationale of level playing field: - SEZ envisages zero-rated exports for level playing in International market - KVAT exempts exports only if goods goes out of India - States make refund for sale to SEZ, but charges VAT/CST for sale from SEZ to DTA due to no difference in user and dealers - Solution: Amendments in both Acts

28 SEZ v/s Stamp Duty Section 57 and Third schedule of SEZ Act amended section 3 of Indian Stamp Act, 1899 With the amendment exemption extended to all docs executed by Developer and Unit Entry 63 of List II: rates of Stamp duty in State domain Hence the amendment in SEZ Act is ultravires

29 The battle for rights between Centre and States goes on and on THANK YOU