Dr. Kirit Somaiya
B.Com, FCA, Ph.D.
Ex-Member of Parliament
Bharatiya Janata Party
Convenor, BJP Investors’ Cell
Member, National Executive
No. KS/DEL/SEZ/2006
3rd November 2006
Respected Prime Minister,
Sub: SEZ – Evolution and evaluation – Healthy execution.
The first six years of evolution, evaluation and execution of SEZ concept needs to be
analyzed. Experience and observations demand improvement in policy and execution process.
Healthy implementation needs minimum dilution, deviation, diversification and
distortion.
Observations:
1. Idea, Thrust , Commitment
i)
Original idea to promote export, attract FDI by developing new township with worldclass infrastructure. Thrust on manufacturing sector.
ii)
Attractions; exemption, relaxation, concessions in taxation, labour laws, land
acquisition for hassle free environment treatment and “foreign territory”.
iii)
Dilution of commitment/compliance for exports, FDI and manufacturing segment.
Developers become unit holders to abuse the benefits for DTA-Non Export
business.
Correction to enforce export and disincentive for DTA business.
2. Tax Heaven/Tax Arbitrage
Developer-cum-unit holder to get undue 25% to 35% indirect tax benefits on erection,
capital investment for DTA business capital goods, e.g. Power Project, Electronic Items (Customs
Duty, CVD nil or negligible).
Developer becoming unit holders to get undue tax benefits. Lesion be learnt from abuse of
Tax benefits of North East Cigarette-Tobacco Industries, Maritius Route & PN route.
BJP Office : ● 11, Ashoka Road, New Delhi 110 001
Please Reply : ● 9C, Neelam Nagar, Mulund (E), Mumbai 400 081
Email: kirit@vsnl.in, kiritsomaiya@gmail.com Website : www.kiritsomaiya.com
Dr. Kirit Somaiya
B.Com, FCA, Ph.D.
Ex-Member of Parliament
Bharatiya Janata Party
Convenor, BJP Investors’ Cell
Member, National Executive
Direct/indirect taxes provisions to be corrected, loopholes to be plugged, tax benefit should be only
for export activities and infrastructure development.
3. SEZ in China and other countries
Almost all countries including China identified territory area, developed new township.
Private entrepreneurs given land only for setting up Export Oriented Units (EOUs). In China no
issue of abuse of tax provisions, land acquisition, “new Zamindars”, etc. prevails as Government
itself is the owner.
Commerce Ministry and Finance Ministry should separately study the concept, provisions, and
benefits to private entrepreneurs of different countries.
4. Non-Processing Zones: This is an Indian phrase/concept.
Illegal, non-scientific provisions of 75% non-processing zone.
The calculation
given/submitted by couple of private mega developers accepted by govt. Abuse of Government
system to get maximum land in and around metro cities for real estate and other business.
Mahendra Multi-sector (1000 hectares) SEZ in Chennai is having 72% processing zone.
The 75% Non Processing Zone demand/idea seems to be given/promoted by the SEZ developers
of Navi Mumbai and Gurgaon.
Negative impact on farmers due to manipulative acquisition/purchase of agricultural land
for housing, hotels, medical education industries.
Minimum 50 to 60% processing zone in Multi Sector SEZ. Codification of activities in nonprocessing zone. No tax benefit for non-export/ service sector business activities. Strict provisions to
restrict/limit housing, hotels, malls, education – medical business. No tax benefits should be given for such
activities.
5. Infrastructure Development:
SEZs in and around metro cities adding burden on present infrastructure. Small IT/ITES,
single sector SEZs not adding any infrastructure, social infrastructure.
So many Mega SEZs in Gurgaon, Haryana, Punjab where NO Port available is quite
surprising.
BJP Office : ● 11, Ashoka Road, New Delhi 110 001
Please Reply : ● 9C, Neelam Nagar, Mulund (E), Mumbai 400 081
Email: kirit@vsnl.in, kiritsomaiya@gmail.com Website : www.kiritsomaiya.com
Dr. Kirit Somaiya
B.Com, FCA, Ph.D.
Ex-Member of Parliament
Bharatiya Janata Party
Convenor, BJP Investors’ Cell
Member, National Executive
Mega SEZ Developer usually prefers to go away from Metro City considering land cost. In
India Mega SEZ coming in & around Metro Cities.
Provision of disincentive to SEZ in and around metro cities. Abuse of Govt Acquisition provisions
to get farmers land cheaply be avoided.
6. Agricultural land:
Fthis problem seems to be limited to couple of Mega SEZs. State be asked to submit detail
study-status of requirement of such fertile, agriculture land. Acquisition of agricultural/fertile
land for non-processing zone be avoided.
Size of mega SEZ can be brought down. There should be Minimum acquisition of such land. Mega
SEZs should be pushed to small and medium towns.
7. Compensation and rehabilitation:
Land acquisition started without such policy. Maharashtra, Punjab and Haryana as well as
Union Government are helping private developers to acquire, purchase land without evolving
healthy rehabilitation package.
National Policy on compensation and rehabilitation should be formed wherein provisions of annuity and
share in developed land, provision of one house and employment to one person of the project affected family
be made mandatory.
8. Impact on domestic Industries:
Undue benefits to SEZ developers-cum-unit holders for DTA business will affect the
competitiveness in domestic industries. Tax/stamp duty/land price shall make the project cost
40 to 50% cheaper in SEZ which will have negative impact in domestic industries, employment
etc.
In future domestic industries will demand same relaxations/benefits. The whole country
can become SEZ, i.e. Tax Heaven. Long term implication on tax, revenue collection of State
Central Governments.
BJP Office : ● 11, Ashoka Road, New Delhi 110 001
Please Reply : ● 9C, Neelam Nagar, Mulund (E), Mumbai 400 081
Email: kirit@vsnl.in, kiritsomaiya@gmail.com Website : www.kiritsomaiya.com
Dr. Kirit Somaiya
B.Com, FCA, Ph.D.
Ex-Member of Parliament
Bharatiya Janata Party
Convenor, BJP Investors’ Cell
Member, National Executive
Disincentive and penalty for DTA business. Level playing field for domestic industry.
9. New Zamindars of Mega SEZs (?)
Concern expressed those 2/3 private entrepreneurs/developers getting approval for 4 to 8
Mega SEZ each, 40,000 to 50,000 hectares land. Government itself helps/supports, provides
undue benefit to make a couple of people bigger than the country?
Size of mega SEZs be curtailed an entrepreneur may be given permission for 1 or 2 SEZ.
10. Transparent decision-making process:
Ambiguity, loopholes regarding provisions of 25 to 35% processing zones/taxes/ land
acquisition/compensation/market price shall be removed.
The recent so-called corrections by Ministry of Commerce/BOA enhancing minimum
processing zone requirement from 25% to 35% is “Eye Wash”. The ambiguous amendment states
that – “now minimum requirement of processing zone will be 35%, which can be relaxed to
25% case to case basis”. Actually there are less than 10 SEZs which are demanding/lobbying for
maximum non-processing zone, i.e. Real Estate and other types of business. Why ambiguous
language/provision ?
Commerce Ministry, CBDT, CBEC should review all provisions, correct the language, plug the
loopholes and illogical provisions.
SEZ concept of says cheaper land, i.e. away from the major cities, adjacent to port. But what is happening
in India is contrary to this.
In China and other countries benefits are given to unit holders, particularly EOU. Here in our country
we have extended maximum/most of the benefits to developers.
Dilution and manipulation resulted ito suspicious atmosphere. This can have long lasting implications on
the economy and country.
These are few suggestions given in brief.
Presentation explaining the same in detail.
I am enclosing herewith a Power Point
BJP Office : ● 11, Ashoka Road, New Delhi 110 001
Please Reply : ● 9C, Neelam Nagar, Mulund (E), Mumbai 400 081
Email: kirit@vsnl.in, kiritsomaiya@gmail.com Website : www.kiritsomaiya.com
Dr. Kirit Somaiya
B.Com, FCA, Ph.D.
Ex-Member of Parliament
Bharatiya Janata Party
Convenor, BJP Investors’ Cell
Member, National Executive
I would request you to kindly initiate evaluation and improvement process.
With kind regards,
Yours sincerely,
sd/(Dr. Kirit Somaiya)
Dr. Mamohan Singh
Hon’ble Prime Minister
South Block
New Delhi
BJP Office : ● 11, Ashoka Road, New Delhi 110 001
Please Reply : ● 9C, Neelam Nagar, Mulund (E), Mumbai 400 081
Email: kirit@vsnl.in, kiritsomaiya@gmail.com Website : www.kiritsomaiya.com