DESH Bill deadlock likely to force Cabinet secretary to step in

Amid continued differences between the commerce and the revenue departments over the proposed revamped special economic zone (SEZ) law or the Development of Enterprises and Services Hub (DESH) Bill, the Cabinet secretary may step in to clear the deadlock over vexed issues.

Despite several rounds of meetings, the revenue department is not on board as far as certain aspects of the fiscal framework — tax incentives — of the draft Bill are concerned, people aware of the matter said. 

The Bill has been prepared by the commerce department.

“The next step could be that the commerce and the revenue secretaries meet and look at ways to iron out the concerns. Even if that doesn’t work, the Cabinet secretary will take the final decision,” said a source.

However, there may be a further delay in the finalisation of the Bill.

 “It is unlikely that the DESH Bill will be tabled in the Budget session of Parliament as the finance ministry is currently busy with the preparation of the Union Budget,” the source said. 

The department of commerce finalised the new proposed SEZ law and sought inter-ministerial comments in June last year, with an aim to table it in the Monsoon Session of Parliament.

Thereafter, the finance ministry’s revenue department raised objections to certain provisions of the Bill, including concessional corporate tax, greater integration of development hubs with domestic tariff area, deferment of Customs duty, and the absence of any export obligation due to the removal of the net foreign exchange earnings criterion. 

The commerce department proposed a fresh criterion allowing companies the “flexibility” to meet just one of the objectives — investments, breakthrough technology, job creation, and exports — according to their choice. This shall ensure that there is no single mandatory export obligation for companies in development hubs, spur economic growth, and make the proposed law compliant with World Trade Organization (WTO) rules. However, the revenue department is yet to be convinced of this.

The announcement of the Bill was made by Finance Minister Nirmala Sitharaman in the Union Budget 2022-23. It seeks to set up development hubs for promoting economic activity, generating employment, integrating with global supply and value chains, maintaining manufacturing and export competitiveness, developing infrastructure facilities, and promoting investments, including in research and development (R&D). Such hubs will include existing SEZs.

The Deadlock

• The department of commerce finalised the new proposed SEZ law and sought inter-ministerial comments in June last year 
• The revenue department is not on board as far as certain aspects of the fiscal framework are concerned 
• It is unlikely that the DESH Bill would be tabled in the Budget Session