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Budget 2022 | New SEZ legislation a welcome step for increasing exports from the IT/ITES sector: Experts

Budget 2022 | IT/ITeS companies account for more than 60 percent of the operational SEZs in India and hence these are important growth drivers for IT firms. At the back of the pandemic, the majority of the 4.5 million workforce continue to work from home.

February 01, 2022 / 04:57 PM IST

As the IT industry looks forward to the new legislation for the Special Economic Zone (SEZ), a key contributor of exports, according to experts, the very proposal is a welcome move that can enhance competitiveness in exports.

Presenting the Budget in Parliament, Finance Minister Nirmala Sitharaman said, "The Special Economic Zones Act will be replaced with a new legislation that will enable the states to become partners in ‘Development of Enterprise and Service Hubs’. This will cover all large existing and new industrial enclaves to optimally utilise available infrastructure and enhance competitiveness of exports."

"Alongside, we will also undertake reforms in Customs Administration of SEZs and it shall henceforth be fully IT driven and function on the Customs National Portal with a focus on higher facilitation and with only risk-based checks. This will ease doing business by SEZ units considerably. This reform shall be implemented by 30th September 2022," the minister said during the speech.

IT industry body NASSCOM said in a tweet, "SEZs have tremendously contributed to India's exports & created additional employment opportunities. We look forward to the new legislation on SEZ Act as this will lead to holistic development of enterprises and enhance competitive exports."

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Vishal Malhotra, TMT Tax Leader, EY India, said that the move is a welcome step for increasing exports from the IT/ ITES sector which constitute 67 percent of the SEZ units operating in the country.

Pareekh Jain, founder, Pareekh Consulting, an IT consultancy firm, said that though the details about the new legislation is not clear yet, the revamping of the SEZ indicates that the government is taking into consideration that workplace changes are a norm.

Concerns around SEZ and tax benefits with the majority of the employees working from home, has been a key ask from the industry. In its pre-budget recommendation, industry body NASSCOM said India was competing with other countries and a competitive tax regime was important to attract investment in the information technology-Business Process Management (IT-BPM) sector.

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China provides a 15 percent corporate tax rate for advanced technology enterprises, including companies in IT- BPM, Sri Lanka provides a reduced tax rate of 14 percent for IT services. Vietnam has a concessional tax rate of 10 percent for high technology/software products manufacturing for 15 years and the Philippines provides a tax holiday of six years from the start of operation.

NASSCOM said additional measures could be put in place to ensure that these provisions were not misused.

Special Economic Zones and tax benefits

IT/ITeS companies account for about 60 percent of the operational SEZs in India and hence these are important growth drivers for IT firms. Even after 18 months of the COVID-19 pandemic, the majority of the 4.5 million workforce continue to work from home.

Most IT firms are now looking at the hybrid working model, with some tech workers working from home permanently. For instance, TCS has said by 2025, 75 percent of its more than 4.5 lakh workforce will work from home permanently.

The Department of Telecom in November 2020 relaxed other service providers (OSP) licence norms so that IT-BPM companies can enable WFH or work from anywhere for the workforce.

The industry also recommended that employees not be taxed for the work from home allowances for chairs and tables that were made available to them by the companies over the period.

“WFH is expected to be the new normal going forward, given its long-term efficiencies (both from a business as well as employee well-being perspective) and hence, it is important to clarify this aspect upfront to avoid any undue hassles,” NASSCOM said in its recommendation.

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Swathi Moorthy
first published: Feb 1, 2022 04:57 pm