Denotified SEZ land serves as greener pastures for developers

Despite the new Land Acquisition Bill gaining the approving of the Parliament, land acquisition might still continue to be a hurdle. However, the top corporates of the country are sitting on roughly 2,200 hectares. This huge amount of land became available after the denotification of the respective special economic zones (SEZs) of the corporate. The primary reason behind the denotification of the SEZs was unattractive tax policies.

With the likes of Parsvnath, Reliance Industries and Kalyani Group denotifying their SEZs, more than 1,300 hectares have been freed up. This land can now be used for the development and establishment of either commercial or industrial purposes. The possibility of the land being put out for alternative usage would depend up on whether the land was acquired either by the corporate or by the government on the behalf of the corporates as well as the respective state governments policies.

State government incentivising denotification:

With the withdrawal of attractive tax incentives, SEZs lost their charms and became unalluring. Specific policies permitting developers to denotify their SEZs, either in part or full as well as providing the alternative option of developing the land for the purposes of industry have been framed by states such as Maharashtra and Haryana. Hence, the states are in a way incentivising developers to denotify SEZs in order to convert them into industrial areas.

Present day figures:

Presently, about 61,829 hectares of land is covered by notified and approved SEZs while notified zones are spread across 46,707 hectares. Due to the government move of bringing the SEZz under the minimum alternate tax (MAT) and dividend distribution tax (DDT), corporates lost their interests in SEZs. Levied from June 1, 2011, the DDT’s rate of 16.22% was applicable on the dividends distributed by the developers of the SEZ, while the applicable rate of MAT is 18.5% of the book profit after.

As on July 31, 2013, 58 SEZs have been denotified of the notified 392 SEZs. Majority of these were denotified within the past two years due to the introduction of MAT and DDT. However, developers have cited various reasons for denotification. The list includes poor market response, the global economic slowdown, lack of demand for space, non-availability of skilled labour force and changed fiscal incentives regime for SEZs.

Denotification process:

In case of denotification of private land, the developer retains the land, while in case of government land, the land would have to be surrendered if it’s not being utilized in the way it was supposed to be within the stipulated time period. After the completion of denotification process, the land is free. However, in few instances states do not permit the developers to use it as per their needs as it might affect either tourism or environment.

Examples of denotification:

A township in accordance with Haryana’s industrial and investment policy for integrated township projects is being planned by RIL on its recently denotified SEZ in Gurgaon.

Realty developer Parsvnath too sought denotification of its SEZ on the basis that it has been incapable of acquiring few minor pockets in the notified area, thereby affecting contiguity.