Draft Development of Enterprise and Service Hubs (DESH) Bill

Context

The Centre plans to table the Development of Enterprise and Service Hubs (DESH) Bill in the monsoon session of the Parliament, which will overhaul the special economic zones (SEZ) legislation.

What are SEZs?

• A Special Economic Zone (SEZ) is an area in which the business and trade laws are different from the rest of the country.
• SEZs are located within a country’s national borders.
• Their aims include increasing trade balance, employment, increased investment, job creation, and effective administration.
• Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.
  
  

Key-provisions of the DESH Bill

• Special Economic Zones will now be renamed as Development of Enterprise and Service Hubs (DESH).
• 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.
• The hubs will be allowed to sell in the domestic market easily 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.
• The Bill proposes an equalization levy for goods or services supplied to the domestic market to bring taxes at par with those provided by units outside.
• The units operating within the new hubs will no longer benefit from direct tax incentives, which will be scrapped — a move that will make the hubs compliant with World Trade Organization rules.
• The bill does not limit how long units can store goods, which is one year currently. Besides, there is no mandatory payment requirement in foreign exchange.
• Lastly, in the current SEZ regime, most decisions were made by the Department of Commerce at the Centre. Now the Bill allows states to participate and even directly send recommendations for development hubs to a central board for approval. Besides, state boards would be set up to oversee the functioning of the hubs.

SEZs in India

• The SEZ policy in India first came into inception on April 1, 2000.
• The prime objective was to enhance foreign investment and provide an internationally competitive and hassle-free environment for exports.
• The idea was to promote exports from the country and realize the need for a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally.
• Subsequently, the SEZ Act 2005, was enacted to provide the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.
• 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