Special Economic Zone

A Special Economic Zone in short SEZ is a geographically bound zones where the economic laws in matters related to export and import are more broadminded and liberal as compared to rest parts of the country. SEZs are projected as duty free area for the purpose of trade, operations, duty and tariffs Within SEZs, a units may be set-up for the manufacture of goods and other activities including processing, assembling, trading, repairing, reconditioning, making of gold/silver, platinum jewellery etc.

Benefits of SEZ
Apart from providing state-of-the-art infrastructure and access to a large well-trained and skilled work force, the SEZ also provides enterprises and developers with a favorable and attractive framework of incentives which include 100% income tax exemption for a period of five years and an additional 50% tax exemption for two years thereafter. Similarly, 100% FDI is also provided in the manufacturing sector. Exemption from industrial licensing requirements and no import license requirements is also given to the SEZ units. Various SEZ Units in India At present there are fourteen functional SEZs located at Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta and Salt Lake (West Bengal), Nodia (Uttar Pradesh), Indore (Madhya Pradesh), Jaipur (Rajasthan), etc. Advantaes 15 year corporate tax holiday on export profit - 100% for initial 5 years, 50% for the next 5 years and up to 50% for the balance 5 years equivalent to profits ploughed back for investment. Allowed to carry forward losses. No licence required for import made under SEZ units. Duty free import or domestic procurement of goods for setting up of the SEZ units. Disadvantages Revenue losses because of the various tax exemptions and incentives. Many traders are interested in SEZ, so that they can acquire at cheap rates and create a land bank for themselves. The number of units applying for setting up EOU's is not commensurate to the number of applications for setting up SEZ's leading to a belief that this project may not match up to expectations.

Types of SEZ
1. SECTOR SPECIFIC SEZs. 2. MULTI-PRODUCT SEZs. 3. Port/ Airport Based SEZs 4. Free Trade and Warehousing Zones SECTOR SPECIFIC SEZs. Sector Specific SEZ-units may be set up for manufacture of one or more goods in a sector rendering of one or more services in a sector Defined as a zone meant exclusively for one or more products or services in one sector. Minimum area requirement is 100 hectares (reduced to 50 hectares for specified States and Territories). For Electronic hardware and software including IT/ITES, minimum area required is 10 Hectares with a minimum built up processing area of one lakh square meters. MULTI-PRODUCT SEZ Signifies an SEZ where units may be set up for manufacture of services of two or more goods/services in a sector or goods/services falling in two or more sectors. Minimum area requirement for SEZ exclusively for services is 100 hectares. Minimum area requirement is 1000 hectares (reduced to 200 hectares for specified States and Territories like in Assam , Meghalaya, Nagaland, Mizoram, Manipur, J&K, Tripura , Sikkim , Himachal Pradesh and Uttaranchal ). PORT/AIRPORT BASED SEZs Freeport's typically encompass much larger areas. They accommodate all types of activities, including tourism and retail sales, permit on-site residence, and provide a broader set of incentives and benefits. Size of this type is greater than100 km2 Market of this type Domestic, internal and export markets Objective of this is integrated development

FREE TRADE AND WAREHOUSING ZONES Free trade zones, also known as commercial free zones and free commercial zones. Objective is to support trade Size is less than 50 hectares Market is domestic and re-export

 Eligibility activity is trade-related activities example is the Colon Free Zone in Panama. ROLE OF SEZS IN INDIAN ECONOMY To Provide Internationally Competitive Environment To Increase Share In Global Exports To Encourage FDI And Enhance GDP To Act As Laboratories For Changes In Our Policies

TAX INCENTIVES
Direct Tax Benefit to Developers 100% tax holiday for 10 consecutive years out of block of 15 years Profit & gains derived from business of developing SEZ notified on or after 1st April 2005 Transferee Developer can also claim deduction for balance period of 10 years on Operation & Maintenance income Direct Tax Benefits to Units 100% of profits and gains derived from the export for five Consecutive Years from which business commences. 50% of for further five A.Y. and

Direct Tax benefits for Units Minimum Alternative Tax provisions not applicable Capital gain tax exemption on relocation to SEZ

Indirect Tax Exemption from payment of Import duty Exemption from payment of Excise duty

SWOT Analysis for Indian SEZs

Strengths: Skilled Manpower knows English Worldwide acceptance of capabilities in fields like Weakness: Infrastructure bottlenecks connecting infrastructure like Roads leading to SEZs. Political changes Convertibility of Currency on Capital A/c Pharmaceutical manufacturing & research Clinical trials Manufacturing auto parts Engineering designing & consultancy, IT & ITES Entertainment etc

Opportunities: An alternative manufacturing base, particularly compared to Chinese SEZs. Services SEZs do not require movement of input and output physically and hence, surrounding infrastructure may not matter much

Threats: Loosing edge of low labour costs - many countries are competing. Formation of economic blocks, Effect on Government Revenues. Negotiations for FTAs with many countries may erode competitiveness.