The commerce ministry is working on a proposal to allow domestic companies to make payments in the rupee currency for services obtained from special economic zone units, sources said. The proposal is aimed at promoting the growth of IT units in special economic zones (SEZs).
At present, domestic firms are required to pay in foreign exchange for services rendered by a SEZ unit. However, this norm is not applicable for sale of goods, for which payments could be made in the rupee terms.
The ministry is in the process of preparing a proposal in this regard as it needs approval of the Cabinet first and then from Parliament as it requires amendment in the SEZ Act, 2005, they said.
It was a long pending demand of the industry to make services at par with the manufacturing sector in terms of payments in the rupee terms for supply made to domestic tariff area (that is companies outside SEZs).
An industry expert said that due to this provision in the law, the government too was not able to give contracts to SEZ units.
This law was hindering the growth of IT units in SEZs. Companies outside these zones have to go through the hassle of changing rupee to foreign exchange for payment purpose, the expert said.
The ministry has discussed the matter with the Central Board of Indirect Taxes and Customs (CBIC), which has favoured the proposal.
The commerce ministry would also hold deliberations with the Reserve Bank of India as the requirement of receipt in foreign exchange is fulfilled procedurally as per the RBI.
SEZs, which emerged as major export hubs in the country, started losing sheen after the imposition of minimum alternate tax and introduction of a sunset clause to end fiscal incentives.These zones are treated as foreign entities in terms of provisions related to customs.