Development of Enterprise and Services Hub (DESH) September 2022 Price Waterhouse & Co LLP
Baba Kalyani Report evaluated the issues faced and recommendationsprovidedwhichhavebeenconsidered
• No interplay with State or incremental fiscal/ no-fiscal incentive
Development Hub
• WTO compatibility
Price Waterhouse & Co LLP 2 September 2022Development of Enterprise and Services Hub (DESH)
• Absence of single window and automation for day-to-day compliances and procedures
• Shift in focus to economic activity, employment generation, value addition, etc.
SEZ regime
• Industrial estates/ parks can be Development Hubs
• Export focus with NFE obligation
• Incremental fiscal/non fiscal incentives proposed
• Ease of doing business measures with change in dynamics of interface with domestic market
Need for DESH
• Development Hub Enterprise Hub (land-based area requirement) & Service Hub (built-up areabased requirement)
• Infrastructure status of Developers and zero rating under GST retained
• Discussion on Income Tax benefit of 15% till 2032
• Equalization levy on domestic clearances proposed
Key highlights of DESH
• Requirement to earn forex on domestic services dispensed with
• Subcontracting to and from DTA units permitted (with specific guidelines to be proposed)
• Net Positive Growth (NPG) criteria used to evaluate unit performance
• State Governments as key partnersoption to provide customized packages
• Focus on non-fiscal incentives and process simplification
• Easing de-notification of Hubs, including partial de-notification (say certain floors)
Price Waterhouse & Co LLP 3 September 2022Development of Enterprise and Services Hub (DESH)
• Guidelines on dispute resolution in terms of mediation, arbitration proposed
06 10090807 01 05040302
Status Quo vs
Fiscal perspective
• Status quo exemption/ benefits on transition with their continuity (e.g., Customs duty and GST) • Incremental benefits in terms of financial subsidy, working capital, etc.
Price Waterhouse & Co LLP 4 September 2022Development of Enterprise and Services Hub (DESH)
Obligation perspective
Exit - Developer
Point for consideration
• Export and NFE no longer the driver for establishment. However, impact of reversal of duties and equalization levy could be key factor • Dispensation of forex earning on DTA sales by service units Compliance and procedure perspective • Flexibility on contiguity – Service Hub • Single Window and ease of doing business measures e.g., self declaration/ certification • Dispute resolution – mediation/ arbitration Present Scenario Proposed Scenario CustomerForeignSupplierForeign Outside India India Unit dutyCustomsNo CustomerDomesticDomesticsuppliers No GST/IGST* Customs Duty SEZNFE Zero rated (No Tax) CustomerSupplierForeignUnitdutycustomsNo Domestic CustomerDomesticsuppliers GST/IGST*No Customs Duty reversal on inputs and capital goods + IGST + EqualizationDevelopmentLevy HubNFE IGSTNo Outside India India
Status
perspective • Status quo exemption/ benefits on transition with their continuity (e.g., Customs duty) • Incremental benefits in terms of financial subsidy, working capital, etc. • IGST – Zero rating benefit continuity for exports and FTP benefits? • MOOWR – Relative benefit Obligation perspective • Export and NFE no longer the key drivers. However, impact of reversal of duties and equalization levy Compliance and procedure perspective • Sub- contracting for DTA • Single Window and ease of doing business measures e.g,. self declaration/ certification • Compliances and implications –Transition vs Exit implications Present Scenario Proposed Scenario CustomerForeignSupplierForeign Outside India India Unit dutyCustomsNo CustomerDomesticDomesticsuppliers No GST/IGST* Customs Duty SEZNFE No IGST CustomerForeignSupplierForeignUnitdutycustomsNo Domestic CustomerDomesticsuppliers GST/IGSTNo / benefits?Export Customs Duty reversal on inputs and capital goods + IGST + EqualizationDevelopmentLevy HubNFE IGSTNo Outside India India * Except in cases where Custom duty is levied on exports
Price Waterhouse & Co LLP 5 September 2022Development of Enterprise and Services Hub (DESH)
Quo vs Exit - Manufacturing Units
Point for consideration
Fiscal
Point for consideration
Apart from the points listed for manufacturing units: • INR billing on DTA clearance vs impact of reversal and equalization levy • Sub-contracting for DTA and in DTA? • Flexibility in service hubs? • SEIS or its alternative – new FTP • Consolidation of business with operational efficiency? • WFH vs no WFH compliance Present Scenario Proposed Scenario CustomerSupplierForeign Outside India India Unit dutyCustomsNo CustomersuppliersLocal No GST/IGST* Customs Duty SEZNFE No IGST CustomerSupplierForeignUnitdutycustomsNo CustomersuppliersLocal GST/IGSTNo / benefits?Export Customs Duty reversal on inputs and capital goods + IGST + EqualizationDevelopmentLevy HubNFE IGSTNo Outside India India * Except in cases where Custom duty is levied on exports INR Billing
Price Waterhouse & Co LLP 6 September 2022Development of Enterprise and Services Hub (DESH) Status Quo vs Exit – Service Units
Conversion vs Industrial Park/ Hubs
• Net tax/ duty benefit impact of becoming a hub from business and operational standpoint • Incremental fiscal/ non-fiscal benefits extended by State to Development Hubs vs otherwise • Ease of exit/ denotification and impact on benefits including implications for tenants
Proposed
Point for consideration
Scenario * Except in cases where Custom duty is levied on exports CustomerForeign Supplier Outside India India Unit No dutyCustoms CustomerLocal suppliers No GST/IGST* Customs Duty reversal on inputs and capital goods + IGST + Equalization Levy HubDevelopmentNFE No IGST
Price Waterhouse & Co LLP 7 September 2022Development of Enterprise and Services Hub (DESH)
Status Quo – State
No restriction. Subject to compliances and payment of Customs duty and GST
Allowed, subject to compliances and payment of GST with reversal of Basic customs duty
Allowed, subject to compliances and payment of GST with reversal of Customs duty. INR billing for services
• Deferment of customs duty
• GST benefit can be availed by local suppliers (deemed exports)
Validity of approvallicense/
ObligationExport
Domestic Clearances
• No deferral of GST on local procurement
• Exemption from payment of customs duty
Price Waterhouse & Co LLP 8 September 2022Development of Enterprise and Services Hub (DESH)
No restriction on usage of CG for domestic manufacturing so long as EO is met
Inputs cannot be used for domestic clearances till discharge of EO
Particulars MooWR AA EPCG EOU Development Hub
Not Applicable ValueAddition 15% 6 times the duty saved and average past 3 years exports Positive NFE Not Applicable
• GST supplies to be zero rated
• Exemption from payment of customs duty
• GST benefit can be availed by local suppliers (deemed exports)
• GST benefit can be availed by local suppliers (deemed exports)
• Exemption from payment of customs duty
DESH vs Other Initiatives
dutyTax/customsbenefit
• Exemption from payment of customs duty on imported inputs (except waste) if goods exported
• Exemption from payment of customs duty
No expiry period 12 months 24 months 5 years Period to be prescribed
Drawback and RODTEP benefit
benefitsIncremental
Development
ContractingSub-
No restriction, however, for capital good to be sent, need to have approval or mention in the authorization Allowed
Not applicable Required Required
EPCG and EOU scheme are before the Appellate Body of WTO
DESH vs Other Initiatives (Cont.)
Permitted
compliancesrelatedredemptionLicense
Auto expectedDebondingrenewal.compliance-tobeeased
of Enterprise and Services Hub (DESH)
No drawback or RODTEP benefit
No drawback or RODTEP benefit
Fiscal and non-fiscal benefits including by States may be prescribed
Debonding compliance
Price Waterhouse & Co LLP 9 September 2022
Particulars MooWR AA EPCG EOU Development Hub
Only as a manufacturersupporting
No drawback or RODTEP benefit
Allowed, guidelines to be notified including tax/ duty benefit availment
Price Waterhouse & Co LLP 10 September 2022Development of Enterprise and Services Hub (DESH) Open Issues Possibility of co-location of export and non-export business in the Development Hub2 Export Duty on supplies from DTA to SEZ currently – Past judicial pronouncement3 Extension of export benefits - RoDTEP, Drawback and other benefits extended in the FTP - including play of state industrial policy / incentives and GST benefits4 Fate of FTWZs – Service Hubs ?5 Equalization levy computation / cost – Services and goods clearances including composite supplies6 Authorized operations to have a negative/ positive list – Coverage and applicability1 Online portal and simplified compliances – onus on the stakeholders including cost7
What
11 September 2022
Impact analysis – what needs to be done for business Next steps in terms of alternatives / points for advocacy Revisit of impact vis-àvis rules subsequentlyand final law • Implementation and transition
Development of Enterprise and Services Hub (DESH) Next
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