DESH bill to introduce simplified exit processes for companies in SEZs: Sources

The DESH Bill is expected to completely overhaul the SEZ ACT announced in 2005.

The Development of Enterprise and Services Hub (DESH) Bill, set to replace the Special Economic Zones (SEZs) Act, is likely to incorporate a provision facilitating an easier exit for companies operating within these zones, as disclosed by two government officials to Moneycontrol.

"Some companies are entangled in SEZs. Through the proposed change, there will be ease in exiting, and then these companies can conduct business outside of it," one official remarked, noting that under the restructured provision, companies may be permitted to exit the SEZ after paying a specified duty.

The DESH Bill was initially introduced by Finance Minister Nirmala Sitharaman in her Budget speech on February 1, 2022. She announced the replacement of the Special Economic Zones Act with a new legislation enabling states to become partners in the Development of Enterprise and Service Hubs. Months later, the Bill was named “DESH.”

According to officials, the Centre aims to present the DESH draft Bill during the upcoming Budget session of Parliament, scheduled from January 31 to April 6, with a recess of nearly one month in between.

The DESH Bill emerged as the Indian government sought to align with norms set by the World Trade Organization (WTO). The WTO’s dispute settlement panel had deemed India’s export-related schemes, including the SEZ Scheme, inconsistent with WTO rules as they directly linked tax benefits to exports.

The SEZ Act, implemented in 2006 to create export hubs and stimulate manufacturing, faced setbacks after the imposition of a minimum alternate tax (MAT) and the introduction of a sunset clause for tax incentive removal.

The United Progressive Alliance government introduced the SEZ Act in 2005, providing a 15-year income tax exemption for these zones and units within them. Initially, there was no sunset date for this exemption.

In 2012, the government amended the income tax law, imposing MAT on SEZs at a rate of 18.5 percent. The Narendra Modi-led government introduced a sunset date for SEZs in 2016 but retained the imposition of MAT.

The DESH Bill is expected to comprehensively overhaul the previous SEZ Act announced in 2005.