Two key economic departments of the government are discussing a set of policy moves, which if approved, could lead to more fiscal sops and ease of payment procedures for factories and enterprises.

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These under-discussion proposals include extending indirect tax benefits linked to creation of jobs and investment commitments to all Indian enterprises engaged in manufacturing of goods and offering services. Also in advance stages of consideration is a proposal for allowing exclusive tax free export enclaves called special economic zones engaged in services like information technology an option to get paid in Indian currency for projects that are undertaken for clients within India.

Sources told CNBC-TV18 that the commerce ministry and the Central Board of Indirect Taxes and Customs (CBIC) have been discussing the recommendations of the Baba Kalyani Committee on recasting Special Economic Zone rules for the past several months. The Kalyani committee had recommended fiscal incentives for SEZs linked to creation of jobs and investments and not export performance of the zones.

A panel of officers of the CBIC -- the nodal government agency for all indirect tax issues -- believes that the idea of job and investment-linked fiscal incentives is doable and has come up with two policy options, sources told CNBC-TV18.

Tax incentives

The first option - which has found more takers - was to delink indirect tax incentives with export performance of SEZs. The CBIC feels that job and investment linked indirect tax incentives is the way forward to promote industrialisation in India and should not be restricted to just SEZs.

According to sources, the CBIC panel of officers believe that such a move will be consistent with global trade norms of the WTO and the Goods and Services Tax regime in India.

The second option, according to sources, was to continue with exclusive export linked fiscal incentives for SEZs and then offer additional job and investment linked sops to these tax-free export enclaves.

These policy proposals are being discussed at a time when private investment activity and job creation have slowed down drastically in India.

While these parleys are on, the Commerce Ministry and the CBIC have agreed to ease payment norms for Services SEZs that undertake projects in the domestic market. According to sources, the CBIC has agreed to a commerce ministry proposal that allows payment in rupee to services SEZs for sales to clients based in India. Currently, such payments by India-based clients have to be made in foreign currency.

Rupee payments

Most of these Services SEZs have IT companies as tenets that engage in overseas projects. They are also allowed to undertake projects in the Domestic tariff Area (DTA) or within India, by paying up additional duties. But, while SEZs making merchandise goods were allowed to pay in Indian rupees for DTA sales, their Infotech counterparts in SEZs didn't have the same benefit.

But with consensus emerging on this issue, the commerce ministry will soon be approaching Prime Minister Narendra Modi-led Cabinet to allow rupee payments to Services SEZs for projects taken up in the domestic market.

When this happens, it is expected to bring down transaction costs and also enable IT SEZs to bid for projects of government-owned enterprises.

First Published:Oct 28, 2019 9:20 PM IST