DESH brownfield units are likely to receive a 15% corporate tax advantage

Brownfield units aiming for a certain level of capacity utilization can benefit from the concessional tax rate of 15% under the revamped special economic zones, called development poles (DH).

While the current regime is limited to new manufacturing units commencing operations before March 2024, the Business and Service Cluster Development (DESH) Bill could extend this window to 2032, as well as to existing units that increase their capacity by 50% or reinvest 50% of their capacity. net value. It aims to improve efficiency per acre and land production.

The Ministry of Commerce also dropped a controversial “equalization levy” proposal that aimed to create a level playing field between units in these development hubs and those outside.

Also, in significant relief, existing SEZ units that became operational before April 2020 will continue to benefit from the remainder of their 15-year tax exemption.

The bill is due to be tabled during the current monsoon session of parliament.

The Commerce Department plans to implement the law by October, a senior government official said.

The new law aims to bring the SEZ law, enacted in 2006 to boost export and manufacturing, into line with WTO standards.

A WTO dispute settlement panel ruled in 2019 that subsidies given to entities located in special trading zones violated the Subsidies and Countervailing Measures Agreement. “In this bill, we say that this limited window to benefit from the concessional tax should be improved for development hubs until 2032. We have proposed that the window be available for new manufacturing units, as well as for existing units where they increase capacity by 50%. % or reinvest 50% of their net worth.”

“We are a land-deficit country. The cost of our land is very high, as is the time and cost of setting up a new factory. So we said that those who increase their capacity should also benefit. This will improve efficiency and increase production per acre of land,” the manager said.

He confirmed that the “equalization tax” proposal had been removed from the final DESH bill.

Currently, while newly incorporated manufacturing companies pay a corporate tax rate of 15%, the preferential rate is only available to units that start operations by March 2024. Other companies must pay a corporate tax rate of 15%. 22% tax.

In 2019, Finance Minister Nirmala Sitharaman reduced corporate tax rates from 30% to 22% for all businesses and 15% for new manufacturing units that start production before March 31, 2023.

This deadline was extended by one year to compensate for lost pandemic years. In addition, in order to facilitate exit, the bill provides for denotification by floor of ZES IT/ITeS.

In addition, representatives of central government services would be available on site to facilitate customs clearance.

Emailed queries to the Commerce Department on Sunday morning went unanswered until press time.

It also provides for the automatic renewal of licenses for developers and units, subject to conditions. Zone developers will achieve Infrastructure status, making it easier for them to obtain credits at competitive rates.

Pratik Jain, Partner, Price Waterhouse & Co LLP said: “There was some confusion over the applicability of the equalization tax on the national authorizations of the proposed hubs. If a decision were made to remove such a levy, it would be more of an incentive for businesses to consider moving to the hub.” The industry is now awaiting the draft rules which are expected to clarify several nuances, including the transition mechanism, the conditions of being imposed for the industry to move to the hub, guidelines for working from home, outsourcing to the domestic domain, calculation of exit duties or levies, etc., he added.

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Luisa D. Fuller