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End of 15-Year Financial Incentives, worry IT Developers in SEZs

2023-08-04

Developers of major IT projects in special economic zones (SEZs) within the state are facing considerable concern. The expiration of the 15-year financial incentives under the 'sunset clause' for developers and IT companies in SEZs has rendered it unappealing for firms to establish units in these zones.

Two significant IT projects, namely Prestige Group's 'Prestige Cyber Green I' on 4.61 acres and Lulu IT Infrabuild's 'twin IT tower' on 12.74 acres, both located in SmartCity-Kochi, Kakkanad, are particularly affected by this transition.

Although these projects are in their final construction stages, officials are worried due to the lack of demand from companies, primarily because SmartCity-Kochi IT park operates entirely within the SEZ. An official from Prestige Group acknowledged that this poses a substantial issue within SEZs.

For SEZ developers, the sunset clause for income-tax exemptions expired in April 2017, while for units within these zones, it ended in April 2020.

Once completed, Prestige Cyber Green will encompass a total built-up area of 0.87 million sq ft with a leasable area of 0.54 million sq ft. On the other hand, the 29-storey Lulu twin tower will have a total built-up area of 36 lakh sq ft. The Prestige Group is investing Rs 3 billion in the Kochi project, while Lulu's IT project is estimated to cost Rs 12 billion.

Developers are pinning their hopes on the DESH Act to provide a solution. It's worth noting that companies operating under SEZ must solely cater to the export market, while non-SEZ entities can serve the domestic market as well. An official from Lulu IT admitted that the termination of fiscal exemptions for IT companies in SEZs has made it challenging for developers to attract companies to their facilities.

However, there is a silver lining for new companies established one month prior to April 2020, as they can still enjoy the financial incentives for 15 years. This means the new rule will mainly impact companies that have been in existence for 15 or more years in SEZs, while those newly established in an SEZ before April 2020 can continue to benefit from the incentives until 2035.