Analyzes GST’s impact on SEZs, focusing on DTA import duties and IGST applicability. Covers key exemptions and simplified refund procedures for operators.
Building upon our previous discussion about various schemes promoting business in Special Economic Zones (SEZs), this article now examines the specific implications of the Goods and Services Tax (GST) for units operating within these zones. Thousands of units currently function across India’s SEZs, and they are poised to encounter new challenges with the advent of GST.
Union Budget 2021 Outcome
The Union Budget 2021 introduced revisions to Customs Duty Rates on several items, effective from February 2, 2021, including:
- A reduction in the duty on copper scrap from 5% to 2.5%.
- Lowering of both basic and special additional excise duties on branded and unbranded petrol and high-speed diesel oil.
- An increase in duty for solar inverters from 5% to 20%.
- An increase in duty for solar lanterns from 5% to 15%.
- A decrease in the basic customs duty applied to gold and silver.
- The department’s intention to rationalize duties on textiles, chemicals, and other products.
Implications of GST on SEZ Units
Historically, SEZ units benefited from exemptions on Services Tax, Central Sales Tax, and, in certain cases, Value Added Tax (VAT). However, this scenario is evolving under the GST regime. Presently, any supply of goods and services from an SEZ unit to a business in a Domestic Tariff Area (DTA) is classified as an import. Consequently, such transactions were subject to Basic Customs Duty (BCD) and Countervailing Duty (CVD).
With GST, CVD and Special Additional Duty (SAD) will be subsumed. Moving forward, BCD and Integrated Goods and Services Tax (IGST) will be applied to supplies originating from SEZs. Purchasers will be eligible to claim credit for the IGST paid, which can be offset against their Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) liabilities, subject to specific conditions.
Anticipated Benefits for SEZ Operators Under GST
SEZ operators are expecting several advantages from the GST framework:
- Supplies directed into SEZs may be exempted from GST and treated similarly to exports outside India.
- The establishment of straightforward refund procedures for any input GST incurred on the procurement of goods and services.
- A reduction in compliance requirements and a simplified process for filing returns.
