Building on our previous discussion about incentives for businesses in Special Economic Zones (SEZs), this article delves into the Goods and Services Tax (GST) implications for entities operating within these zones. Currently, numerous businesses across India function from SEZs.
Union Budget 2021 Revisions
The Union Budget for 2021 introduced several adjustments to Customs Duty rates. These changes, effective from February 2nd, 2021, included:
- A reduction in duty on copper scrap from 5% to 2.5%. – A decrease in basic and special additional excise duty on both branded and unbranded petrol and high-speed diesel oil. – An increase in duty on solar inverters from 5% to 20%, and on solar lanterns from 5% to 15%. – A reduction in the basic customs duty applied to gold and silver. – Plans for the department to streamline duties on textiles, chemicals, and other commodities.
The implementation of GST presents new complexities for SEZ units. Previously, these units benefited from exemptions on Service Tax, Central Sales Tax, and sometimes Value Added Tax (VAT), but this favorable treatment may change under the new GST framework. Presently, any supply of goods and services from an SEZ unit to a business in the Domestic Tariff Area (DTA) is classified as an import. Consequently, Basic Customs Duty (BCD) and Countervailing Duty (CVD) are applied to such transactions. Since GST incorporates CVD and Special Additional Duty (SAD), future supplies from SEZs will incur BCD and Integrated Goods and Services Tax (IGST). Buyers will also be eligible to claim IGST credit to offset their Central GST (CGST) and State GST (SGST) liabilities, provided certain conditions are met.
Expected GST Advantages for SEZ Operators
SEZ operators anticipate several advantages under the GST framework, including:
- Exemption from GST for supplies made into an SEZ, treating them as exports. – A simplified refund process for any input GST paid on acquiring goods and services. – Reduced compliance obligations and streamlined return filing procedures.