The government plans to relax the contiguity norms for special economic zones, a move that will benefit developers of zones such as Navi Mumbai SEZ in Maharashtra and Iffco Kisan SEZ in Andhra Pradesh. The existing guidelines, which stipulate continuity within SEZs, would have forced developers to invest in building bridges and flyovers over railway lines or water bodies falling within such zones, even if they are located in the non-processing areas where there is no production activity.
“Since tax sops are not given for operations in non-processing areas, the board of approval for SEZs is of the view that the government could relax contiguity norms there,” a commerce department official said, requesting anonymity.
In areas where maintaining contiguity would be mandatory, the government may offer tax-breaks on inputs needed for constructing bridges or flyovers, he said.
The BoA, comprising officials from the ministries of commerce, finance, agriculture and home, clears SEZ proposals and takes decisions concerning operation of such zones.
The decision, if implemented, could benefit the Rs 5,000-crore Navi Mumbai SEZ promoted by Anand Jain, a close associate of Reliance Industries’ chief Mukesh Ambani, and the Rs 2,400-crore Iffco Kisan SEZ. These SEZs have highways and railway lines passing through them.
“The idea behind the contiguity norms is to have control over the processing area as tax exemptions are given for that area. Even if the rules are relaxed for non-processing areas, there wouldn’t be any issue of tax evasion,” said Hitender Mehta, a Gurgaon-based consultant and SEZ expert.
The board of approval for SEZs is of the view that relaxing contiguity norms for developers cannot be ad hoc and there has to be some established criteria in place, said another government official, who also asked not to be named.
“Formal instructions on the matter may be issued so that people can’t say that decisions are being taken to favour a particular developer,” he said. He said the commerce ministry is trying to convince the revenue department to offer tax breaks on building material in cases where contiguity is mandatory. “The bridges and flyovers would also be part of the SEZ, so should be eligible for tax breaks,” he said.
Mr Mehta, however, said since contiguity of the zone would be established only when the bridges and flyovers are built, they may not be ineligible for tax sops.
An SEZ is an area within a country where the economic laws are more liberal. Such zones are created to encourage export-oriented industrialisation.