Development of Enterprise and Service Hubs Bill | 06 Jul 2022

For Prelims: Special Economic Zone, Equalization Levy, Minimum Alternate tax, Sunset Clause

For Mains: Development of Enterprise and Service Hubs Bill and its Significance

Why in News?

The Government plans to table the Development of Enterprise and Service Hubs (DESH) Bill during the upcoming monsoon session of the Parliament.

What is DESH Bill?

  • It will overhaul the existing Special Economic Zone law of 2005, aims to revive interest in SEZs and develop more inclusive economic hubs.
  • SEZs will be revamped and renamed as Development hubs and will be free from a number of the laws that currently restrict them. These hubs will facilitate both export-oriented and domestic investment, playing the dual role of domestic tariff area and SEZ.
  • The government may impose an equalization levy on goods or services supplied to the domestic market to bring taxes at par with those provided by units outside.

Why replace the existing SEZ Act?

  • WTO’s dispute settlement panel has ruled that India’s export-related schemes, including the SEZ Scheme, were inconsistent with WTO rules since they directly linked tax benefits to exports.
  • Countries are not allowed to directly subsidize exports as it can distort market prices.
  • SEZ started declining after the introduction of minimum alternate tax and a sunset clause to remove tax sops.
    • SEZ units used to enjoy 100% income tax exemption on export income for the first five years, 50% for the next five years, and 50% of the ploughed back export profit for another five years.

How is the DESH Legislation Significant?

  • Development Hubs:
    • Beyond promoting exports it has a much wider objective of boosting domestic manufacturing and job creation through ‘development hubs’.
    • These hubs will no longer be required to be net foreign exchange positive cumulatively in five years (i.e, export more than they import) as mandated in the SEZ regime, and will be allowed to sell in the domestic area more easily.
    • The hubs will, therefore, be WTO-compliant.
  • Online Portal for Approvals:
    • DESH legislation provides for an online single-window portal for the grant of time-bound approvals for establishing and operating the hubs.
  • Boost Domestic Market:
    • Companies can sell in the domestic market with duties only to be paid on the imported inputs and raw materials instead of the final product.
      • In the current SEZ regime, duty is paid on the final product when a product is sold in the domestic market. Besides, there is no mandatory payment requirement in forex, unlike in the case of SEZs.
  • Larger role for States:
    • State boards would be set up to oversee the functioning of the hubs. They would have the powers to approve imports or procurement of goods and monitor the utilization of goods or services, warehousing, and trading in the development hub.
      • In the SEZ regime, most decisions were made by the commerce department at the Centre. Now, states will be able to participate and even directly send recommendations for development hubs to a central board for approval.

Source: MINT