Government plans to change the definition of ‘services’ under SEZ Act

Government sources said that the proposed amendment would modify the existing provision in the SEZ Act that mandates payment for services in foreign currency

IIFT campus at SEZ area in Kakinada District. Express

 Center-Center-Vijayawada

The government is likely to broaden the definition of services under the Special Economic Zones (SEZ) Act and align it with the Goods and Services Tax (GST) law, to remove the long-standing restriction that requires service exports from SEZs to earn foreign exchange, confirmed a government official aware of the matter.
Government sources said that the proposed amendment would modify the existing provision in the SEZ Act that mandates payment for services in foreign currency. Thus, service firms in the SEZ units will be able to receive payments in Indian rupees for services supplied to the Domestic Tariff Area (DTA).

“But we are also trying to get a small amendment in the SEZ Act. Today, the definition of services in the SEZ Act is very limited. It says that the services must earn foreign exchange. That means you cannot take your payment in Indian rupees. So, we will remove that line. We will make the definition of services in
alignment with the definition in the GST Act," the official told TNIE.

The proposed amendment comes in line with the broader exercise to make the SEZ more lucrative for service firms, which has seen several information technology companies moving out of the SEZ as the government withdrew the income tax incentives.

"There are quite a few companies which may have been moving out. There are many IT companies moving out of SEZs because of the taking away of the income tax benefits. There is also a restriction on getting payments for delivery of services from SEZ to DTA in Indian rupees. They can only take payments in foreign currency," the source said.

Representatives from the SEZ units have argued that the foreign exchange requirement is incompatible with the growing domestic digital economy, especially considering that SEZ-based IT and business services firms increasingly serve Indian clients.

Officials said the government is simultaneously examining additional reforms for SEZs and is awaiting the recommendations of a committee reviewing the legal and policy framework. Industry representatives from SEZs held a meeting with the Ministry of Commerce to officials a few days ago, urging the government to allow rupee-denominated payments for services supplied to the domestic market. They also asked the government to align SEZ rules with other export promotion
schemes, and position Free Trade Warehousing Zones (FTWZs) as global logistics hubs.