Govt approves SEZ Act

Govt approves SEZ Act
eKantipur.com, 20-Jun-2007
BY MILAN MANI SHARMA

After years of debate, the government has finally endorsed the Special Economic Zone (SEZ) Act, incorporating better tax incentives and flexible labor provisions for entrepreneurs in the zone.

The Act would soon be forwarded to the House of Representatives for enactment, said acting Industry Secretary Purushottam Ojha.

Referring to provisions of the Act, Ojha told the Post that it upholds three broader principles: incentives to industries, one-spot service and labor flexibility.

The Act treats SEZ as a land where other domestic laws related to labor and industries would not be applicable. It has mooted an autonomous SEZ Authority to oversee its operations.

The Act, however, is still weak on labor related provisions, said officials involved in the formulation of Act, adding that provisions to tighten 'labor indiscipline' proposed initially has been diluted in the approved Act.

Nevertheless, while allowing workers to unite and practice collective bargaining, it prohibits workers from undertaking activities that affect production and normal operations of industries.

The Act allows entrepreneurs to hire workers on contract basis. “Terms of recruitment, facilities and lay off would be governed by the agreement the worker and management would sign while accepting the job.”

Initially, officials had pushed for 'hire and fire' provision as demanded by entrepreneurs.

The Act says that facilities for workers in the SEZ should be better than what workers receive outside of the zone. “SEZ Authority will see that workers pay scale, medical and insurance facilities are better than others,” reads the Act.

In order to lure investors in SEZ, the government has decided to provide them with facilities such as duty-free import of raw materials, exemption of value added tax (VAT) and free them from excise duty and other local taxes.

“The industries in SEZ will be provided with income tax holiday for five years,” says the Act. After five years also, they would be provided with 50 percent discount on income tax.

In order to ensure investment guarantee, the Act says industries already into operation would continue to enjoy all the facilities, even if later amendments changed the structure and extent of facilities.

Going by the Act, only export-oriented industries can be set up in SEZ. Nevertheless the government has allowed them to make domestic sales not exceeding 15 percent of their transactions.

SEZ Authority, to be led by an independent expert, would initially lease the land in SEZ for 30 years. Also, 50 percent, 40 percent and 25 percent discounts will be provided on lease rent for the first three years of investment. After 30 years, lease agreement can be renewed in every 5 years.

The Act has asked SEZ Authority to provide one-spot services so that foreign and domestic investors would not have to take the trouble of approaching different government offices.

The vision of the Act is to provide services like visa, visa renewal, logistics and other facilities through a special office of SEZ Authority.