Export Processing zones in India

There has been a considerable simplification and rationalization of union excise duties as
well. Beside reduction in the number of rates, the tax has been progressively converted from a
specific into ad valorem levy in respect of a majority of commodities. Furthermore, the multipoint
excise duties were converted into a modified value-added (MODVAT) tax, which enabled
manufacturers to deduct excise paid on domestically produced inputs and countervailing duties
paid on imported inputs from their excise obligations on output. This change significantly
reduced the taxation of inputs. In the case of corporate income taxes, the rates were progressively
reduced on both domestic and foreign companies to 35 per cent and 40 per cent respectively. The
said rates are also subject to exemptions and deductions thereon as may be notified from time to
time.
Furthermore, several tax and non tax incentives in the form of capital subsidies
(permissible) and concessional credits are offered by the central and state governments to
domestic firms outside the zone similar to those within it. Export incentives take the form of duty
drawback, i.e., a refund of central excise and customs duties levied on raw materials and
components used in the manufacture of exports, import replenishment to replace imported raw
materials and components used in the manufacture of exports, duty entitlement pass book
scheme, advance licence scheme, airfreight subsidy on the export of certain products and credit
facilities from approved financial institutions at pre-shipment and post-shipment stages, export
promotion of capital goods (EPCG scheme) which allowed import duty of 5% on capital goods.
Two other tax exemptions are : tax exemption of 100% on export profits for ten years (upto
2009-10) for new industries located in Electronic Hardware and Software Technology Parks and
100% Export Oriented Units and deduction of 50% of export profits from the gross total
income 6 .
One may also observe that tax incentives are offered to zone units on central taxes only.
Zones are not exempted from state level taxes. Table 10 shows that in almost all the zones units
are subject to stamp duties, Octroi, cess and contract tax . In China where the SEZ have been
highly successful in attracting FDI , units are offered exemptions not only from the national taxes
but also from the local taxes.
6 The deduction would be restricted to 30% for financial year 2003-04 and no deduction is
allowable subsequently
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