A report by Cushman and Wakefield India in association with Dhruva Advisors
- 1/3rd of India’s office market supply coming from SEZ’s
- IT SEZs have a majority share of exports from SEZs, with INR 4320 crores (USD 43.2 bn)
- 64 operational SEZ’s in the country in which Bangalore is leading with maximum share of 32% followed by Hyderabad (16 %), Pune (14%) and Chennai (14%)
- The C&W Occupier Perception Survey revealed that 60% of SEZ occupiers want to expand before March 2020 i.e. before the Sunset Clause applies
The inferences from the survey cast light on the favourable and optimistic outlook from occupiers planning to expand their footprint across the SEZ and non-SEZ regions. While SEZ occupiers plan to expand before the sunset clause is applied to avail tax benefits, non-SEZ occupiers find the clause’s indirect tax benefits as a major draw. Therefore, they are expected to expand into the SEZ zone in the longer term. This perception has also percolated down to supply creation, as developers are also expediting construction timelines in order to meet the Q1 2020 deadline, where possible.
Key highlights of the report
- We expect that the demand for SEZs will remain healthy over the next 3 to 4 months.
- SEZs have continued to hold a consistent share in the India office stock, retaining a long-term average share of 25% since 2014.
- The sunset clause has not significantly impacted rental growth in any market. Demand-supply dynamics driven by low vacancy levels and an occupier rush will have direct impact on rents.
- Tech cities are likely to continue playing a significant role in the SEZ landscape, having a major share of the upcoming supply.
- Occupiers from Tech, Engineering & Manufacturing sectors are the most represented in SEZ facilities.
Impact assessment of Sunset Clause:
- Occupiers: New SEZ occupiers are eligible to receive both direct and indirect tax benefits, only if they commence operations before the end of March 2020. All new SEZ occupiers commencing operations beginning 1 April 2020 will not be eligible to receive direct tax benefits. However, the sunset clause will not impact their indirect taxes, and they will continue to receive benefits such as exemptions on GST and SEIS incentives (on eligible services), as long as they are operational.
- Developers: The direct tax benefits are no longer available to SEZ developers and co-developers, but their indirect tax benefits continue uninterrupted. The sunset clause will not impact their indirect tax benefits in any form.
About Dhruva Advisors
Dhruva Advisors is a leading tax boutique with offices in 6 cities in India offering a wide range of services in the tax and regulatory space to clients in India and around the world. Dhruva Advisors has been awarded the India Tax Firm of the year award for three years running (2017, 2018, 2019) by International Tax Review. With a highly regarded and experienced team of professionals, Dhurva provides well-thought out strategies and solutions to complex problems in tax and regulatory matters. Our professionals have advised on some of the most significant transactions and have handled several of the largest and most critical tax controversies and related matters in India.