Size of SEZ
The ceiling for size of the SEZ has been placed at 5,000 hectares whereas the minimum area requirements would vary for sector-specific and multi-product special economic zones and with respect to location, i.e. the hilly / forest terrains of north-east, Jammu &Kashmir, Himachal Pradesh and Jharkhand states have been offered with relaxation in minimum area requirements.
Development of Social Infrastructure in the SEZ
. For a sector- specific SEZ, full tax benefits would be given for constructing specified social infrastructure. The upper ceiling for these benefits is 50,000 sq metre of office space, 7,500 houses, 100 hotel rooms, 25-bed hospitals and educational Institutes on a 25,000 sq metre area.
. For a multi-product SEZs, full tax benefits will be given for 25,000 houses, 250 hotel rooms, 100-bed hospitals and educational institutes on 0.25 Mn Sq metre.
. Developers have the right to build more such facilities without violating the master plan and earmarking 40% land as green-zone. Facilities created by SEZ developers over and above the specified ceilings will not qualify for full tax benefits. There could, however, be exceptions to this rule, subject to the BoA nod.
. There is no restriction on outsiders availing of these social infrastructure facilities, although SEZ employees would get priority. The employees can sub-lease their houses or other property, but not sell them.
. The authorized operations eligible for approval in IT/ITES, biotech, and gems & jewellery SEZs include Wi Fi / Wi Max services, roads and rain harvesting plants. In multi-product SEZs these include, rail heads, ports, airports, banks and golf courses.
Minimum requirements for a developer
. For a sector specific SEZ, the developer should have a net worth of Rs. 50 crore or he should invest INR 250 crore in a sector-specific SEZ.
. For multi-product SEZs, each promoter should invest INR 1,000 crore or have a net worth of INR 250 crore.
. The Board of Approvals (BoA) has the right to waive the conditions on merit
The procedure for setting up an SEZ have been drastically simplified and a singlewindow for clearances has been provided According to the Commerce and Industry Minister, the simplified tax breaks and procedures would enable SEZs to attract investments of about INR 100,000 core and has the potential to create five lakh new jobs in the next three years. There would be a single window clearance for SEZs, SEZ Units. While duty exemption would be automatic the transactions cost would also be reduced.
Validity of approvals
a) In principle approvals
The validity of 'in-principle' approvals has been reduced from three years to one year. This has been done to allay fears of real estate grabbing in the name of SEZs. This should keep out 'speculative' developers and ensure that developers acquire the requisite land and make good their investment promises as soon as possible or risk losing their approvals altogether.
b) Formal approvals
The validity for formal approval is three years. The possibility of the developer acquiring land for SEZ to gain from real estate prices is negligible since it is not possible for a developer to get formal approval unless the land acquisition and other formalities with the state governments are complete within a year of getting an in-principle nod from the Board of Approvals.
Tax / Duty exemptions
. All units operating from SEZ would get full income tax exemption for 5 years;
. All units operating in SEZ will be exempt from Service Tax;
. Developers will get tax exemption for 10 years;
. Countervailing duty of 4 per cent would not be levied on imports by units in SEZ.
Rehabilitation of persons displaced due to SEZ
The SEZ developers are solely responsible for rehabilitation of displaced persons, which implies that the earlier policy that vested land acquisition powers in the hands of state governments stands void. The developer is required to make adequate provision for rehabilitation of displaced persons as per the relief and rehabilitation policy of the state government.
National Environmental Policy-2006
The principal objectives of this policy, as enumerated below, relate to current perceptions of key environmental challenges. They may, accordingly, evolve over time:
. Conservation of Critical Environmental Resources:
To protect and conserve critical ecological systems and resources, and invaluable natural and man-made heritage, which are essential for lifesupport, livelihoods, economic growth, and a broad conception of human well-being.
. Intra-generational Equity: Livelihood Security for the Poor:
To ensure equitable access to environmental resources and quality for all sections of society, and in particular, to ensure that poor communities, which are most dependent on environmental resources for their livelihoods, are assured secure access to these resources.
. Inter-generational equity:
To ensure judicious use of environmental resources to meet the needs and aspirations of the present and future generations.
. Integration of Environmental Concerns in Economic and Social Development
To integrate environmental concerns into policies, plans, programmes, and projects for economic and social development.
. Efficiency in Environmental Resource Use:
To ensure efficient use of environmental resources in the sense of reduction in their use per unit of economic output, to minimize adverse environmental impacts.
. Environmental Governance:
To apply the principles of good governance (transparency, rationality, accountability, reduction in time and costs, participation, and regulatory independence) to the management and regulation of use of environmental resources.
. Enhancement of Resources for Environmental Conservation:
To ensure higher resource flows, comprising finance, technology, management skills, traditional knowledge, and social capital, for environmental conservation through mutually beneficial multi - stakeholder partnerships between local communities, public agencies, the academic and research community, investors, and multilateral and bilateral development partners.
Keeping into consideration the above objectives, suitable environmental initiatives would need to be taken up during the establishment of industries and other infrastructural projects to preserve the natural resources, prevent pollution of environment. Specific environmental standards have been specified for this purpose which has to be complied by different institutions.
Land Acquisition Act
As per the provisions of Land Acquisition Act,1894 (Central Act) the Government is empowered to acquire any land, which is not the property of Government and which is required for public purpose or under the special circumstances described in Part-VII of the act, for a Company. The land, interests of which are already vested in Government and in which no interests of private person exist, cannot form the subject of proceedings under the Land Acquisition Act. Transfer of such land from one department to another or to a local authority or to a Corporation owned or controlled by the State or Company should be arranged for by executing action.
Authority competent to act on behalf of Government
According to the provisions of Section-3(c) of the Act, the Collector of district or a Deputy Commissioner and any officer specially appointed by the appropriate Government to perform the functions of a Collector under the Land Acquisition Act can acquire land under that Act. Since Collector of the district is overburdened with multifarious work it is usual to vest an officer with the powers of Collector under the Act. In case of large projects like Irrigation, Railways etc. a Special Land Acquisition Officer is appointed to expedite the process of land acquisition for such projects.
Filing Requisition & Pre-requisites for land acquisition
When land is required for public purpose, the requiring authority should file requisition with the Collector with requisites viz., schedule of land, land plan, administrative approval etc. indicating the purpose for acquisition. It is incumbent on the officer, who selects land for the requiring department, to endeavor to avoid buildings particularly religious buildings, tombs, graveyards etc., the acquisition of which will entail unnecessary expenditure of Government and annoyance to owners or the members of any religion or section, if the object sought can be equally well attained by a slight alteration of the alignment or site chosen or any some other manner. It is the duty of the Collector to see that the interest of the Government, of the public and private individuals are duly considered and that the land to be acquired and so selected is to cause the minimum of the expenditure, annoyance and loss compatible with the attainment of the object for which the land is required.
Land Requisition Procedure & Issue of 4(1) verification
Following receipt of the requisition, the Collector shall forward the draft notification along with necessary documents/ papers to the Revenue Department, R.D.C. and the Administrative Department concerned. If the proposal is in order the Revenue Department issues the notification u/s 4(1) of the act endorsing copies to all concerned. The notification so issued is required to be published in the Orissa Gazette and 2 Oriya Dailies. Besides, the Collector should give public notice of the substance of the notification at convenient places of the locality in which the land proposed to be acquired is situated. The last of the dates is taken as the date of publication of notification u/s 4(1). Section 17(4) authorizes the local Government to dispense with the procedure laid down in Section 3-A and issue the declaration u/s 6 immediately after the publication of the notification u/s 4(1) without inviting or hearing objections. This procedure is adopted if the land is required for public purpose urgently. In other cases, Section 5-A of the Act entitles the persons interested in the land proposed to be acquired to prefer objections. The Collector shall hear the objections received within the statutory period of 30 days. Following completion of hearing the Collector will furnish his report to the Government in Revenue Department keeping the requiring officer, R.D.C and Administrative Department informed.
Issue and Publication of declaration u/s 6(1)
The Collector is required to prepare and forward the draft declaration u/s 6(1), estimates and plan to the R.D.C. with copies to Administrative Department and others concerned. After receipt of the sanctioned estimates along with draft declaration papers from the Administrative Department, Revenue Department issues the declaration u/s 6(1) of the Act. The declaration so issued is required tobe published in the same manner as in case of the notification, issued u/s 4(1).
Section 7 - Land Acquisition Act
After issue of declaration u/s 6(1), the requiring authority should deposit the estimated amount as sanctioned by the Government with the Collector for the purpose of disbursement of compensation to the persons interested in the land. Soon after the deposit of the estimated amount by the requiring authority, the Collector intimates such facts to the Government with request to issue orders u/s 7. Following publication of declaration of u/s 6(1) and receipt of report from the Collector regarding placement of funds by the requiring authority, the Revenue Department issues orders u/s 7 directing the Collector to take over possession of the land after framing the award and disbursing the compensation to the persons interested.
GST (Goods and Services Tax)
Proposed GST Framework
. To sustain the high growth performance of the Indian economy, there is a need to complete the process of indirect tax reforms leading to a comprehensive goods and services tax (GST) which can replace the sales tax, octroi.
. As per the announcements made by the Union Finance Minister, GST may well be in place by April 2010.
Treatment of Imports and Exports in a GST framework
As per the report of the Task Force on Implementation of the Fiscal Responsibility and Budget Management Act, 2003:
Imports are charged a combination of customs and GST. Imported goods would find their way across the economy at many levels in complex networks of production. A brief illustration of the treatment of Imports & Exports in the GST framework is as follows:
. Firm A and Firm B are each suppliers of goods and services to an exporting firm. Each of them sells goods/services worth Rs.100, which attracts a GST of Rs.12 at the rate of 12%.
. The exporting firm has a value added of INR 20 and the exported goods are worth Rs.220.
. Since exports are zero-rated in a GST, the output tax is 0. The input tax embedded in the raw material purchases is INR 24. Hence, the GST applicable for the exporting firm is -24. Thus the GST embedded in exports is 'refunded' to the exporting firm.
Impact on Exports
. The rationalization of taxation of goods and services would have an enormously positive impact on exports from the country;
. A central feature of global production today is the phenomenon of breaking up production into long production networks that are spread all over the world;
. The traditional vision of manufacturing consists of a long assembly line, starting from primary raw materials and ending in finished goods.
However, in the last 40 years, this long assembly line has been broken up across multiple locations spread across the world, in the quest for highest efficiency for each step in the overall production process;
. Global production now takes place at highly specialized and highly efficient production centres. Raw materials get shipped to these centres, a small amount of value added takes place, and the products get shipped to another highly specialized and highly efficient production centre. This implies that the value added at any one location of production is relatively small when compared with the value of output;
. Globally oriented firms tend to have high turnover but relatively low value added. For these firms, distorted taxation can be a major factor affecting investment decisions.
. If revenues of INR 100 are based on value added of INR 20, then a distortion in taxation of INR 2/- works out to 10% of the value added.
. While a value like INR 2/- appears small when compared to a base of INR 100, it should appropriately be compared with the value added and not the turnover. In this case, small mistakes in taxation can be large enough to make or break the viability of a proposed organization of production. In this situation, there is an only one correct architecture for the fiscal system, as illustrated above, which consists of following four elements:
- All imported goods should face a near-uniform and low tariff
This avoids the anomalous rates of effective protection that can come about from apparently minor differences between customs duties.
- Imported goods should be charged a CVD at the point of entry, reflecting the domestic GST plus the state VAT
This avoids situations with negative rates of protection.
- The domestic export-oriented factory should buy numerous goods and services domestically, but be able to clearly identify the GST and state
This is a much superior framework as compared with the present situation, where refunds that come back to firms are necessarily incomplete. In particular, at present, the services purchased by manufacturing firms at present contain a component of the service tax, but no credits are given reflecting this.
- As the product is leaving the country, the domestic factory should get back refund of the GST and state VAT that is embedded in the goods that are leaving, which is the sum of all the GST and state VAT that has go into the product, through a state of the art IT system without a human interface with the tax administration.
This is a much superior framework when compared with the transactions costs involved in dealing with the export subsidy programs.
For India to emerge as a major powerhouse in the evolving global economy, it is crucial to have this sound fiscal architecture comprising of near-uniform customs rates, well coordinated central and state GST, with efficient payment of credits at the point of export. The tax reforms proposed in this report seek to achieve precisely this goal.
Long Run GST Rate
. The suggestion of the Kelkar Committee to aim at a 20 per cent combined GST rate seems to be a suitable target as it compares well with some of the international GST rates.
. A suitable GST rate, should be much lower than the sum of core rates of Cenvat at 16 per cent and State VAT of 12.5 per cent, which relate to the taxation of goods.
Central, State Components of GST
. There has been a debate on whether India should go for a completely centralized GST, or agree to a State GST. A centralized GST provides harmonization of tax rates and exemptions by definition. On the other hand, an exclusive State level GST takes state autonomy to the extreme and calls for external harmonization efforts apart from reducing Centre\'s capacity of equalizing transfers in a country characterized by extreme disparities.
. In the medium term, with a view to preserving the federal structure, a system of concurrent taxation consisting of a State GST (SGST) and a Central GST (CGST) seems to be a viable option.
. Determining the component tax rates of CGST and SGST: keeping in mind the benchmark for the overall tax rate. If the equation of pre- and post-devolution accrual of resources is not to be disturbed as this, in broad terms, has been stable for long years, there is a possibility to settle for almost equal levels for the two components, that is, 10 per cent each.
. As per the recommendation of the Kelkar Committee, a division of the 20 per cent GST rate was suggested, where 12 per cent is for the Central GST and 8 per cent for the State GST. The Twelfth Finance Commission (TFC) had also observed that the 12:8 ratios in favor of the Centre can increase the vertical imbalance in the system.
. Also, The Finance Minister, P. Chidambaram, hinted some time back that the resting point for the proposed national level Goods and Services Tax (GST) would be between 14 and 16 per cent. Explaining the rationale for increasing the service tax rate to 12 per cent in the Budget, he said that since movement to GST had been planned for April 1, 2010, there had to be convergence of the excise and service tax rates.