The government should consider allowing the sale of products manufactured in Special Economic Zones (SEZs) in the domestic market on payment of duty foregone on inputs as that would help promote value addition, think tank GTRI said on Tuesday. At present, units in SEZs are allowed to sell their products in the Domestic Tariff Area (DTA or domestic market) on payment of duties on an output basis (finished goods).

The Global Trade Research Initiative (GTRI) said the government already allows DTA sales on payment of duty foregone on input basis to firms operating under the ‘Manufacturing and Other Operations in Warehouse Regulations (MOOWR)’ scheme.

The government can “extend the same concession to the SEZs for parity sake. This will encourage value addition within the SEZ, as in most cases, the tariff on finished products is higher than on inputs,” GTRI Co-Founder Ajay Srivastava said.

He added that SEZ units could be incentivised to increase value addition to avail the benefit of DTA sales, which could further enhance technological advancement and skill development.

These zones are treated as foreign territories for trade and duties, with restrictions on duty-free domestic sales.

Companies operating within SEZs are allowed to import materials and components duty-free, with the condition that the finished goods produced are meant to be exported out of India and sold in the Indian domestic market on payment of applicable duties on the output.

On demand of units in SEZs that they should be permitted to sell their products in the domestic market without paying import duties, the GTRI said and added that this would distort the export focus as well as lead to a loss of revenue for the government.

“SEZ units are intended to be export-oriented. If goods from SEZs are allowed into the DTA on the same terms as free trade agreement imports, this might disincentivise exports and turn these zones into back doors for importing goods duty-free for the domestic market, defeating the purpose of having export-focused zones,” it said.

Such a move would also adversely affect the domestic industry by the influx of SEZ-made goods sold at lower prices due to duty exemption.

“This could lead to unfair competition and potential job losses in domestic manufacturing sectors,” Srivastava said.