GST may cover SEZ non-processing areas

Supplies to non-processing area in Special Economic Zones (SEZs) will attract the unified goods and services tax (GST) once the tax regime is in place, from April 1, 2010. Non-processing area essentially houses social infrastructure, like schools, residential premises and shopping complexes, and supplies to it are exempted from both Central and state taxes in the present regime.

The empowered committee of state finance ministers, which is giving final touches to the draft report on GST, has favoured levy of tax on supplies to non-processing areas of the zone, sources said. The report would be submitted to the Central government for implementation after discussion at the next meeting of the committee in January.

The joint working group in its report has also recommended that sales from SEZs to domestic tariff area would attract GST.

The Central government exempts taxes for authorised activities for both developer and co-developer for both processing and non-processing area.

Uptill now, states did not make a distinction between processing area where the actual production takes place and non-processing area. But state finance ministers have been demanding levy of all taxes in the non-processing area for sometime. Though, they may find it difficult to do it under the VAT regime, they do not want to leave any such window open under the GST regime. Under the GST, both state and Centre will have the right to levy and collect tax on goods and services.

The proposed move is likely to have a huge impact on SEZs.

“SEZs are intend to create infrastructure in the country which include industrial infrastructure as well as social infrastructure. Hence for creation of social infrastructure in non-processing area as well, the Central government as well as state governments should provide exemptions,” Export Promotion Council for Export Oriented Units & Special Economic Zone Units director general L B Singhal said.

He said new generation SEZs have started coming up very well and will accelerate the process of inclusive growth.

“However, for reaping the complete benefit of the scheme, it is imperative that provisions of SEZ Acts and rules are implemented in totality by various authorities in the central and state governments,” he said.

Source : The Economic Times, India, dated 28/12/2007