Special Economic

Zones

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 India - first in Asia to recognize the
effectiveness of the Export
Processing Zone (EPZ) model in
promoting exports,
 Asia's first EPZ set up in Kandla in
1965.

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 Reasons for the Special Economic
Zones (SEZs) Policy April 2000.

 With a view to overcome the

shortcomings experienced:
 multiplicity of controls and clearances;
 absence of world-class infrastructure,
and
 an unstable fiscal regime and with a
view to attract larger foreign investments
in India,

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 This policy to make SEZs an engine for
economic growth supported by
quality infrastructure complemented by
an attractive fiscal package, both at
the Centre and the State level, with the
minimum possible regulations.

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 SEZs in India functioned from
1.11.2000 to 09.02.2006 under the
provisions of the Foreign Trade
Policy and fiscal incentives were made
effective through the provisions of
relevant statutes.

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 To instill confidence in investors and
signal the Government's commitment to a
stable SEZ policy regime
 with a view to impart stability to the SEZ
regime thereby generating greater
economic activity and employment through
the establishment of SEZs,
 a comprehensive draft SEZ Bill prepared after
extensive discussions with the stakeholders.
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The Special Economic
Zones Act 2005

Act 28 of 2005
W.e.f. 23rd June 2005
 Object of the Act
 An Act to provide for
 the establishment,
 development and
 management of the Special Economic
Zones
 for the promotion of exports and
 for matters connected therewith or
incidental thereto.
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 Special Economic Zone
 Such geographical region which ha
more liberal economic laws than the
country’s typical laws

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 Known as
 trade capacity development tool,
 with the goal to promote rapid economic
growth
 by using tax and business incentives to
 attract foreign investment and technology

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 SEZ in the world today
 Approx 3000 SEZ
 In 120 Countries
 Accounts for over $600 billion in
export
 About 50 million jobs

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 What SEZ provides?
 A medium wherein it not only attracts
foreign companies looking for cheaper
and efficient location to set up their
offshore business, but it 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

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 Offers relaxed tax and tariff policies
which is different from other economic
areas of the country.
 E.g. Duty free import of raw material
for production in SEZ.

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 Free trade zones – attracts big
players who want to set-up business
without any license hassles and long
process involved in it.
 Allotment through single window &
highly transparent system.

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 Main Benefit
 Increased export and FDI enabling
increased public-private
partnership and ultimately
resulting in a development of
world class infrastructure,
boost economic growth,
exports and employment.
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 Concept of SEZ – Largely promoted
by China – Contribution 20% of FDI
 Implementation in Poland &
Philippines
 Shenzhen in China – Best example
of SEZ development

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 SEZ and India
 Important for third world countries.
 Need of
 Huge funds
 Infrastructure
 Employment generation
 Economic Growth

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 SEZ and Investment
 Funds for Development
 Tie-up with private partners
 Capital and Infrastructure
development against consideration
of Right in the local markets and
relaxed tax laws

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 SEZ & Employment
 Labour requirement in the industry
 Various allied activities including..
 Indirect employment in township,
shopping malls, restaurants,
amusement parks etc.

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 SEZ & Foreign Export
 Increased FDI & Presence of private
equity – tie-up of local manufacturers
with big brands.
 Export on their names – carrying better
value & demand for the goods
 Increase in revenue of the countries

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Provisions of SEZ in India
 Authorities for SEZ:
 Board of Approval (“Board”)
 Development Commissioner

 Approval Committee

 SEZ Authority

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 SEZ could be jointly or severally
developed by the Central or State
Government or a private party,
 (a) for manufacturing goods,
 (b) for rendering services, or
 (c) as a free trade and warehousing zone

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 Procedure
 Establishment by
 Central or State Govt.
 Public or Private Sector – Including foreign
company
 Proposal by Developer after identifying the
area.
 Forwarding proposal to Board with
recommendations – 45 Days

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 Contents of Proposal
 Location of the proposed SEZ with details of existing
infrastructure and infrastructure proposed to be
established
 Its area and distance from the nearest seaport /
airport / rail / road
 Financial details, including proposed investment, mode
of financing and viability of the project
 Details of foreign equity and repatriation of
dividends, etc., if any
 Whether the SEZ will allow only certain specific industries
or will be a multi-product SEZ

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 Criteria for Approval
 Generation of additional economic activity
 Promotion of export of goods and services
 Promotion of investments from domestic and
foreign sources
 Creation of employment opportunities
 Development of infrastructural facilities
 Maintenance of sovereignty and integrity of
India and security of the States

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 Allotment of Land by the developer to
individual units
 No permission to sell the non-
processing area in SEZ – only allotment
for business and social purposes
 Bond cum legal undertaking by the
developer for proper utilization

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 Developer must hold minimum 26%
equity in the entity.
 Undertaking by developer for-
 Area planning
 Sewerage disposal
 Pollution control
 Industrial and labour laws

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 Establishment of SEZ Unit
 Proposal to Development Commissioner.
 Will be forwarded to the Approval
Committee.
 Constitution of AC - Development
Commissioners, Officers from State and
Central Government and also a
representative of the Developer as a
Special Invitee

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 Consolidated Application for
approval of -
 Allotment of Land / Industrial Sheds in SEZ
 Registration-cum-Membership certificate
 Annual permission for sub-contracting
 Allotment of Import Exporter Code Number
 Power connection
 Water connection
 Small Scale Industries registration
 Registration with the Central Insecticides Board
 Registration with Central Pollution Control Board
 Building approval
 Sales Tax registration
 Approval from the Inspectorate of Factories
 Pollution control clearance wherever required
 Any other approval as may be required from the State Government, or as prescribed
or sought by the State Government
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 Obligations for SEZ Units
 Legal undertaking to achieve positive NFE.
 Periodic reports to the Development
Commissioner and Zone Customs
 Maintain proper accounts and furnish details
regarding the value of imports, exports, etc. to
the Development Commissioner on a quarterly
basis
 Bond with the Zone Customs for its operations
in the SEZ
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 Benefits to SEZ Developers
 100 per cent of the profits of the Developer shall
be deducted from taxable income.
 Deduction can be claimed at the option of the assessee for any
10 consecutive years out of 15 years beginning from the year in
which the SEZ has been notified by the Central Government.
 Exemption under Section 80-IA
 Exemption from Minimum Alternate Tax
 No dividend distribution tax shall be paid by a
Developer engaged in developing, operating and
maintaining an SEZ
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 Benefits to SEZ Units
 100% exemption of profits and gains from
business for the first 5 years
 50% exemption on profits and gains from
business for the next 5 years
 50% exemption to the extent that such
amounts are re-invested in the SEZ Special
Reserve Account

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 Losses falling under the heads “Profits and
Gains from Business or Profession” and
“Income from Capital Gains” can be carried
forward / set off as long as such loss is
related to the business of the SEZ Unit
 Exemptions from Capital Gains tax on transfer
of assets

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 Interest income received by a non-resident
or a person who is not ordinarily resident in
India, on a deposit made in an OBU
situated in an SEZ, shall be exempt from
total income
 Exemption from Securities Transaction
Tax available to taxable securities transaction
entered into by a non-resident through the
IFSC
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 Exemption from Customs
Duty
 SEZ Units may import or procure duty
free, all their requirements of capital
goods, raw materials, consumables,
spares, packing materials, office
equipment, DG sets etc. for
implementation of their projects in the
SEZ without requiring any licence or
specific approval
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 Goods imported/procured locally
which are duty-free could or should
be utilized within the approval
period of 5 years
 Domestic sales by SEZ Units will be
exempt from Special Additional
Duty
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 Domestic sale of finished products,
by-products is permitted on payment of
applicable Customs duty
 Domestic sale of rejects, waste and
scrap is permitted on payment of
applicable customs duty on the
transaction value

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 Exemption for FDI
 100% FDI under the automatic
route is allowed in the
manufacturing sector in SEZ
Units,

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 Exceptions –
 Arms and ammunition,
 explosives,
 atomic substances,
 narcotics and hazardous chemicals,
 distillation and brewing of alcoholic
 drinks and cigarettes, cigars and
manufactured tobacco substitutes
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 Setting up OBUs has been allowed in
SEZs.
 External Commercial Borrowings by SEZ
Units up to US $ 500 million a year is
allowed without any maturity
restrictions

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 Central Sales Tax
 Exemption from Central sales tax
on inter-state sale or purchase of
goods

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 State Taxes
 The respective State Governments may
notify policies for Developers and
SEZ Units and take suitable steps for
the enactment of any law for granting
exemption from state taxes, levies and
duties to a Developer or an
entrepreneur

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 Service Tax
 Exemption from Service Tax to the
Developer and the SEZ Units to
carry on authorized operations in
the SEZ.

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 Stamp duty
 No stamp duty is chargeable in respect
of any instrument executed, by, or, on
behalf of, or, in favour of, the
Developer, or Unit or in connection
with the carrying out of the purposes of
the SEZ

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 Sub Contracting
 Permissible to SEZ Units in DTA or other
SEZ

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 Transaction incentives
with DTA
 Supplies from a DTA to SEZ to be
treated as physical export. DTA supplier
would be entitled for various
exemptions and benefits.

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