SPECIAL ECONOMIC ZONES

WHAT IS SEZ?

It is a geographical region that has economic laws that are

more liberal than a countrys typical economic laws. An SEZ is a trade capacity development tool, with the goal to promote rapid economic growth by using tax and business incentives to attract foreign investment and technology. Today, there are approximately 3,000 SEZs operating in 120 countries, which account for over US$ 600 billion in exports and about 50 million jobs.

WHAT IS SEZ?
By offering privileged terms, SEZs attract investment and

foreign exchange, spur employment and boost the development of improved technologies and infrastructure. It also allows the local industries to improve their export through a proper channel and with the help of the new foreign partners to the outside world at a very competitive price. SEZs offer relaxed tax and tariff policies which is different from the other economic areas in the country.

SEZs IN INDIA

India is one of the first countries in Asia to recognize the

effectiveness of the Export Processing Zone (EPZ) model in promoting exports. Asias first EPZ was set up in Kandla in 1965. With a view to create an environment for achieving rapid growth in exports, a Special Economic Zone policy was announced in the Export and Import (EXIM) Policy 2000. Under this policy, one of the main features is that the designated duty free enclave to be treated as foreign territory only for trade operations and duties and tariffs.

EPZ VERSUS SEZ

While EPZs are industrial estates, SEZs are virtually

industrial townships that provide supportive infrastructure such as housing, roads, ports and telecommunication. The scope of activities that can be undertaken in the SEZs is much wider and their linkages with the domestic economy are stronger. Their role is not transient like the EPZs, as they are intended to be instruments of regional development as well as export promotion.

MAIN OBJECTIVES OF THE SEZ ACT

Generation of additional economic activity

Promotion of exports of goods and services Promotion of investment from domestic and foreign

sources; Creation of employment opportunities; Development of infrastructure facilities.

KEY CRITERIA FOR APPROVAL OF SEZ AND RESTRICTIONS

Development of world-class infrastructure for export

of goods and services and generation of significant additional economic activity. Positive net foreign exchange earnings. Promotion of investments from domestic and foreign sources. Creation of employment opportunities.

KEY CRITERIA FOR APPROVAL OF SEZ AND RESTRICTIONS

Restrictions on sale of land
The developer has to hold a minimum of 26% stake

in the SEZ to retain all the benefits Minimum size requirements depending on products or services offered Maintenance of sovereignty and integrity of India and security of the states.

Type of SEZ.
Multi product

Minimum Area
1000 hectares

Processing Area
35% or more of total area

Multi product exclusively (200 hectares in specified 35% or more of total area for services states) 100 hectares

Sector specific or in a port or airport

100 hectares

50% or more of total area

Electronic hardware and software, including ITES

10 hectares

50% or more of total area and minimum built up area of approximately 1.1 million sq. ft. (100,000 sq. m)

Type of SEZ Biotechnology, nonconventional energy or gems and jewelry

Minimum area 10 hectares

Processing area 50% or more of total area and minimum built up area of approximately 0.4 million sq. ft. (40,000 sq. m)

Sector specific (other than IT/ITES, biotechnology etc) in specified states

50 hectares

50% or more of total area

Free trade & warehousing zone (whether as a part of multi product SEZ or otherwise)

Only FTWZ: 40 hectares with a built up area of not less than approximately 1.1 million sq. ft. (100,000 sq. m)

Part of multi-product: No area stipulation

Part of sector specific SEZ: Maximum area is 20% of processing area

APPROVAL MECHANISM
The

developer submits the proposal for establishment of SEZ to the concerned State Government. The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the Board of Approval. The applicant also has the option to submit the proposal directly to the Board of Approval.

APPROVAL MECHANISM
The Board of Approval has been constituted by the

Central Government in exercise of the powers conferred under the SEZ Act. All the decisions are taken in the Board of Approval by consensus. The Board of Approval has 19 Members The board of approval is chaired by Secretary, Department of Commerce

APPROVAL MECHANISM

Any proposals for setting up of units in the SEZ are

approved at the Zonal level by the Approval Committee consisting of Development Commissioner, Customs Authorities and representatives of State Government.

ADMINISTRATIVE SET UP FOR SEZS

SEZs is governed by a three tier administrative set up:
The Board of Approval is the apex body in the Department, The Unit Approval Committee at the Zonal level dealing

with approval of units in the SEZs and other related issues, Each Zone is headed by a Development Commissioner, who also heads the Unit Approval Committee.

INCENTIVES AND FACILITIES OFFERED TO DEVELOPERS

INCENTIVES AND FACILITIES

Exemption from customs/excise duties for development of

SEZs for authorized operations approved by the BOA. Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act. Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act. Exemption from dividend distribution tax under Section 115O of the Income Tax Act. Exemption from Central Sales Tax (CST). Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).

INCENTIVES AND FACILITIES OFFERED TO UNITS IN SEZ

INCENTIVES AND FACILITIES

Duty free import/domestic procurement of goods for

development, operation and maintenance of SEZ units 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years. Exemption from minimum alternate tax under section 115JB of the Income Tax Act.

INCENTIVES AND FACILITIES

External commercial borrowing by SEZ units upto US $

500 million in a year without any maturity restriction through recognized banking channels. Exemption from Central Sales Tax. Exemption from Service Tax. Single window clearance for Central and State level approvals. Exemption from State sales tax and other levies as extended by the respective State Governments.

LARGE MULTI-PRODUCT SEZs

LARGE SECTOR SPECIFIC SEZs

LARGE IT SEZs

EXPORTS FROM FUNTIONING SEZs

Year
2003-2004 2004-2005 2005-2006 2006-20007 2007-2008

Value (Rs. Crore)

13,854 18,314 22 840 34,615 66,638

Growth Rate ( over previous year )

39% 32% 25% 52% 93%

2008-2009
2009-2010

99,689
2,20,711.39

50%
121.40%

OPPOSITION TO SEZs
Large scale land acquisition by developers, displacement

of farmers, meager compensation and no alternative source of livelihood. Instances of land acquisition to benefit some private entities rather than public good. Using prime agricultural land for SEZs can have serious implications for food security. Tax concessions lead to revenue losses for the government.

OPPOSITION TO SEZs

Companies may simply relocate to SEZs to take

advantage of tax concessions. Out of total proposed investment, 83pc has been in only five states aggravating regional disparities. May lead to misallocation of scarce resources Improper location leads to supply chain management problems.

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