WFYI logo

GST's Effects on Special Economic Zones: A Continued Analysis

This article explores the ongoing implications of Goods and Services Tax (GST) for units operating within Special Economic Zones (SEZs) across India. It details how the GST framework alters previous tax exemptions and introduces new challenges, particularly regarding supplies to the Domestic Tariff Area (DTA), which are now treated as imports subject to BCD and IGST. The discussion also covers the Union Budget 2021's revisions to customs duty rates and highlights the benefits SEZ operators anticipate under GST, such as exemptions for supplies into SEZs and simplified compliance procedures.

📖 2 min read read🏷️ Special Economic Zones under GST

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.

Further Reading

Frequently Asked Questions

What is the purpose of a Special Economic Zone (SEZ) in India?
Special Economic Zones (SEZs) are designated areas in India established to promote exports, attract foreign investment, and boost economic growth by offering favorable tax and business policies.
How does GST impact businesses operating within SEZs?
Under GST, businesses in SEZs face changes in tax treatment, with previous exemptions like Service Tax and VAT being replaced. Supplies from SEZs to the Domestic Tariff Area (DTA) are treated as imports and are subject to Basic Customs Duty (BCD) and Integrated Goods and Services Tax (IGST).
Are supplies made from a Domestic Tariff Area (DTA) to an SEZ unit considered exports?
Yes, under the GST regime, supplies of goods and services made from a Domestic Tariff Area (DTA) to a Special Economic Zone (SEZ) unit are treated as zero-rated supplies, akin to exports.
What taxes are levied on goods and services supplied from an SEZ to a DTA?
When goods and services are supplied from an SEZ unit to a Domestic Tariff Area (DTA), they are considered imports into the DTA and are subject to Basic Customs Duty (BCD) and Integrated Goods and Services Tax (IGST).
Can SEZ units claim input tax credit under GST?
Yes, SEZ units are generally eligible to claim input tax credit (ITC) on the GST paid for the procurement of goods and services, particularly when such supplies are used for making zero-rated supplies (exports) or other eligible transactions.
What are some anticipated benefits for SEZ operators under GST?
SEZ operators expect benefits such as GST exemptions for supplies into SEZs (treated as exports), streamlined refund procedures for input GST, and simplified compliance and return filing processes.
What significant changes did the Union Budget 2021 bring regarding customs duties?
The Union Budget 2021 introduced several changes to customs duties, including reduced duty on copper scrap, lower excise duty on petrol and diesel, increased duty on solar inverters and lanterns, and reduced basic customs duty on gold and silver.

Share Article

Browse by Topics

Related Articles

Popular Articles