GST or the goods and services tax is all set to subsume all types of indirect taxes like service tax, VAT, excite duty, luxury tax and many other forms of taxes with a single, simplified and a unified tax system in the country. This will translate to moving to an easier tax structure compared to the existing complicated tax system in the country with innumerable state wise taxes. As per the GST news today, it is also bound to bring a GDP growth of at least 2%.
Along with many other implications, the question which now pops up is the impact of GST on special economic zones or SEZ where a specific zone enjoys special tax laws as compared to a non SEZ area. It is no surprise that SEZ business owners have set hawk eye on GST latest news coming from all quarters. Before discussing the impact, let us first try to understand what exactly SEZs are.
What is SEZ or special economic zone?
A special economic zone (SEZ) is a zone or an area where the laws of business or trade are more relaxed than the other parts of the country. The purpose of the formation of SEZ with special laws and policies is to create an increased trade and investment, attract FDI, improve job opportunities, encourage set up of new businesses etc. in a particular area. In a SEZ, special policies related to investment, taxation, business, tax holidays, customs and labor regulations are formulated. SEZ has an exemption from customs or excise duties and also may enjoy certain other enabling policies including income Tax exemption, minimum alternate tax exemption, dividend distribution tax exemption, exemption from CST and ST.
SEZ produce is treated as a foreign customs territory of India. All the supplies made to SEZ are treated as export out of the country. Goods and services produced from a SEZ to a domestic territory is treated as an import of the goods and services.
Impact of GST on SEZ
At present, there are 8 functional SEZs in India and 18 more SEZ have already got approval. These SEZmay now have different laws with the advent of GST. As the GST latest news says, under the new GST regime, they may not get anymore exemptions which they used to receive and may get different laws to abide by.
As we are aware that any goods and services that is initiated from a special economic zone is considered as an import to the Domestic area, and hence as a process, the Basic Customs Duty or BCD along with the Countervailing Duty or CVD is levied on this kind of sale. As per the GST news today, now that GST subsumes Countervailing Duty (CVD) and Special addition duty (SAD) along with many other duties and taxes, now onwards Basic Customs Duty or BCD and Integrated Goods and Services Tax or IGST will be levied on any supply initiated from a SEZ where the buyer will also receive the credit of IGST.
Also, as the GST news today states, as per Section 7 of the Integrated Goods and Services Tax Act or IGST Act, supply of goods or services to or by a Special Economic Zone will be treated as inter-State trade or commerce and not an intra state supply. As per Section 16 of the IGST Act, supply of goods or services to a SEZ will be rated as zero-rated supply. The suppliers can make their supplies without payment of IGST and claim Input Tax Credits or make supplies on payment of IGST and then claim refund.
The businessmen in SEZ will get benefitted due to exemption of GST on their supplies to SEZ, low tax compliance, and easy return filing process. The GST latest news suggests that under the GST system, every unit of the special Economic zone and all the SEZ developers will have to first register themselves as a separate business vertical in a particular state, distinct from its other units situated outside the SEZ zone.
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