No income tax inside SEZs proposed

THE government has planned to waive income tax totally for at least seven years and provide 50 percent off forever to industrial enterprises being established in special economic zones (SEZs). This tax incentive and other sweeteners have been inserted in the proposed Industrial Enterprises Act which will be enforced through an ordinance soon. The government has included SEZ issues in this act as a bid to create a separate SEZ Act came to naught. An SEZ being built in Bhairahawa in south central Nepal is at the final stages of completion while a number of other SEZs have been planned. The draft ordinance has also proposed to exempt raw materials from import duty under certain conditions. “The degree of customs exemption will be based on the volume of finished products exported,” said a source at the Ministry of Industry. The proposed law has planned to provide concessions on value added tax (VAT) and excise duty. However, the source said that the Finance Ministry was reluctant to waive VAT and excise duty. “The Finance Ministry has argued that as VAT is raised from general customers, it is not necessary to waive VAT,” said the source. As far as excise duty is concerned, the proposed ordinance has talked about giving an exemption of up to 90 percent. In addition to tax incentives, the draft Industrial Enterprises Act has stated that better facilities will be provided to employees inside the SEZ. It also includes a provision that assures greater flexibility in labour relations. This clause falls short of the right to hire and fire as demanded by the business community. “It has been stated that management has been authorised to treat the workers as per the contract signed between the two sides,” said Industry Secretary Krishna Gyawali. Meanwhile, only enterprises possessing new machinery will be allowed to be set up in the SEZ. “This means that factories located outside the SEZ will be permitted to move into it only if they install new equipment,” said the source. Gyawali said that additional conditions to be imposed on enterprises wishing to move into the SEZ were being considered to prevent them from doing so only to enjoy tax benefits. Although the SEZs have been planned particularly for export-oriented enterprises, the government is considering allowing manufacturing units that make a substantial contribution to import substitution to be set up there. “About 70-75 percent of the factories in the SEZs will be export-oriented and the rest focused on import substitution,” said Gyawali. The government will encourage enterprises producing goods listed in the Nepal Trade Integration Strategy to be set up in the SEZs. “The door is also open to other enterprises that have been set up for export purposes,” said Gyawali. The draft has also given recognition to the SEZ Development Committee which is the current institutional arrangement for the operation of the SEZs. Gyawali said that the proposed ordinance contains indication on how the SEZs should be operated. “But a separate operational manual will be prepared for the SEZs,” said Gyawali. The SEZ Development Committee is currently working on such a manual. “After the manual is approved by the government, we will issue a notice calling enterprises wishing to move into the SEZs,” said Shankar Man Singh, executive director of the SEZ Committee. He added that the committee planned to issue the notice within six months. Cent percent income tax exemption for seven years and 50 percent forever Import duty rebate on raw materials based on export performance VAT and excise duty exemption proposed Workers to get more facilities but labour flexibility assured Basically export enterprises to be set up with a few import-substitution enterprises SEZ Dev Committee preparing SEZ operation manual The degree of customs exemption will be based on the volume of finished products exported