World Trade Organization Organisation Mondiale du Commerce Organización Mundial del Comercio

US FQ 28:

(on US 72)

Report by the Secretariat (WT/TPR/S/249): III. TRADE POLICIES AND PRACTICES BY MEASURE: (3) Measures Directly Affecting Exports: (vii) Export support: Page 84, paragraph 155:

The Secretariat's report states that firms, including those within the textiles and garment industries, that are established within a Special Economic Zone (SEZ) "benefit from several incentives subject to generating foreign exchange earnings within five years of operation." Specifically, the Secretariat's report notes that SEZ units, including those within the textiles and garment industries, are exempt from various taxes, such as income tax, central sales tax, and minimum alternate tax, as well as from a series of state taxes (i.e. sales taxes, stamp duty, and electricity duty). The Secretariat's report states that both SEZs and EOUs are exempt from various taxes, including income tax, until March 31, 2011. Could India confirm whether all of these incentives ended on March 31, 2011, or whether some or all of them have continued past that date? If they have continued, please provide the expected date of termination, if any.

Reply: Provisions relating to EOUs are provided in Chapter VI of the Foreign Trade Policy 2009-14, which may be viewed on http://dgft.gov.in. Income tax exemption for EOUs has been withdrawn with effect from 1.04.2011.

Facilities available for SEZ units and SEZ developers are provided in the SEZ Act 2005 and SEZ Rules 2006, which may be viewed on www.sezindia.gov.in. Minimum alternate tax (MAT) @18.5% has been imposed on SEZ units and developers with effect from 1 April 2012. Similarly SEZ developers are now required to pay dividend distribution tax (DDT), on which exemption was available previously.

U.S. Follow-Up Question: Apart from the income tax, MAT, and DDT, are there any remaining taxes from which SEZs and EOUs are exempt as of September 16, 2011? If exemption from other taxes for SEZs and EOUs has been terminated, please identify the legal instruments that effectuate that termination.

Reply: The benefits extended to EOUs includes exemption of custom and central excise duty on capital goods and raw material and consumables required for manufacturing of goods and services for export purpose and permissible sale in DTA as per Foreign Trade Policy. In addition, EOUs are eligible for full reimbursement of central sales tax (CST) charged on inter state sales. However, Income Tax benefits to these units for their export profits were available up to 31.3.2011. No further extension has been granted.