Here’s How The Economy Will Benefit From Amendments To SEZ Bill
Here are the implications of trusts being permitted to set up units inside special economic zones.
Trusts can now set up units inside special economic zones, with both houses of Parliament approving the Special Economic Zones Amendment Bill, 2019.
The bill replaces the existing ordinance promulgated by the government in March. It will become an act after receiving the President’s nod.
Key Changes
The bill adds trusts to the existing definition of “person” under the SEZ Act, which till now only comprised a company, firm, Hindu undivided family or a cooperative society. The amendment also allows the government to notify any other entity under the definition of “person”.
Reasons For The Change
Trusts are common operational structures in the financial sector, with even the regulators beginning to recognise them as investment vehicles. Trusts are also recognised as a form of financial institution for setting up alternative investment funds. The Securities and Exchange Board of India recently allowed listing of real estate investment trusts on the exchanges.
Commerce Minister Piyush Goyal explained the reasons behind the amendment in the Rajya Sabha recently: “Special Economic Zones have been able to create new job opportunities. The government has received eight proposals from trusts to set up units in SEZs.” The proposals, he said, have investment potential of up to Rs 8,000 crore and the proposed changes can result in about three billion dollars of new investments annually.
There are nearly 351 notified SEZs in India with a total investment of Rs 5 lakh crore as on March, as per a recent report by Ministry of Commerce,.
There was a demand from the industry for allowing the use of a trust structure, which the government has now complemented, according to Atul Singh, Partner in Khaitan & Co. “Initially when the SEZ Act was passed, trust wasn’t an eligible entity for being set up in SEZ.”
At present, guidelines of the central bank and market regulator allow foreign investors to use the trust structure to set up alternative investment funds or real estate investment trusts, he said.
The trust structure is also used for operational efficiency, for which certain benefits are available under the Income Tax Act, he said. Therefore, it’s being promoted as a vehicle for investment in SEZs, he said, adding: “However, benefits under the SEZ Act will remain the same.”
Tax and duty benefits to SEZs were gradually withdrawn by governments over the years, leading to a decline in new applications and the zones falling out of favour of investors.
Barring the proposed change, there appears to be no specific indirect tax impact, according to Mahesh Jaising, partner in Deloitte India. “However, given that trusts are significant contributors to the financial sector, this should serve as a growth booster for finance sector, he said.”