Special Economic Zones: What Lies Beyond the Sunset Clause and COVID 19?

The Special Economic Zones Act of 2005 was a landmark economic policy in India’s post-liberalization growth era. The SEZ policy sought to provide the necessary simplified regulatory environment and incentives to drive private investments and exports. This Act envisaged establishment of designated duty-free enclaves across the country with a view to enhance economic activity, promote investment by domestic and foreign companies and increase exports of goods and services. Attractive fiscal packages, both direct and indirect, were provided both by the central and state governments and the authorities also sought to simplify compliances and procedures for development, operation and maintenance of SEZs.  
 
Over the past few years, the SEZ policy has been in the news because of the Sunset Clause, which phased out all direct tax holidays for both developers and occupiers/unitholders at different periods (indirect tax benefits can still be availed). While industry associations such as NASSCOM and Export Promotion Council for EOUs and SEZs (EPCES) had requested the authorities to extend the tax benefits for a few years, these ceased to exist from 1st April 2017 for developers and from 1st April 2020 for occupiers. 
 
Considering the impact of COVID-19 and lockdown restrictions across India, the government has extended timeline for newly established units in SEZs to claim tax incentives to September 30th, 2020 provided the letter of approval has been issued on or before 31st March 2020. 
 
This report looks at the current status of SEZs, particularly the period post Sunset Clause implementation which accidentally coincided with the COVID-19 pandemic, their impact and tries to evaluate the outlook for the future. 
 
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