SEZs

Vital observation

Specially delineated duty free enclave

Special Economic Zone

Deemed foreign territory for trade, operations, duties and tariff No licence required for import

Manufacturing, trading or service activity allowed

Full freedom for subcontracting including subcontracting abroad

SEZ unit to be positive net foreign exchange earner within three years Job work on behalf of domestic exporters for direct exports allowed

No separate documentation required for Customs and Exim Policy

SEZs vital statistics

According to World Bank estimates, as of 2007 there are more than 3,000 projects taking place in SEZs in 120 countries worldwide. A single SEZ can contain multiple 'specific' zones within its boundaries. The two most prominent examples of this layered approach are Subic Bay in the Philippines and the Aqaba Special Economic Zone in Jordan Funding can be Pvt/Govt/both SEZ Act 2005

 Development of SEZ

Key Players

Developer Person responsible for procuring the land on which the SEZ will be set up and arranging for the construction, development, provision of infrastructure, operation and maintenance of the SEZ Co-developers Person who enters into an agreement with the Developer to assist the Developer in providing infrastructure in the SEZ or undertaking any other operations as have been authorized by the Board of Approval Entrepreneurs Units are set up within the SEZ by Entrepreneurs to undertake manufacturing activities and / or provide services

Exemptions/benefits
exemption from customs duty on goods imported into the SEZ by the Developer or SEZ Unit to carry on the authorised operations; exemption from customs duty on goods exported from the SEZ by the Developer or SEZ Unit to any place outside India; exemption from excise duty on goods brought from Domestic Tariff Area ("DTA") to the SEZ by the Developer or SEZ unit to carry on the authorized operations; exemption from service tax on taxable services provided to a Developer or Unit to carry on the authorized. Exemption, if any, would be as per the service tax legislation; exemption from the securities transaction tax in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre ("IFSC"); exemption from levy of Central Sales Tax on the sale or purchase of goods by the Developer or SEZ unit if such goods are meant to carry on the authorized operations; Local sales tax/ VAT exemption or concession on supply of goods to an SEZ Developer or Unit or sale of goods by an SEZ Developer or Unit is subject to the respective sales tax/ VAT legislation of the state in which the SEZ is set up. The Central government has prescribed the manner, terms and conditions subject to which above exemptions/ concessions would be available.

Benefits
A new section 10AA has been inserted in the IT Act by SEZ Act, 2005 which provides that the units in SEZ which start manufacturing or producing articles/ things OR which start providing services on or after April 1, 2005 will be eligible for a deduction of 100 percent of export profits for the first five years and 50 percent of the export profits for the next five years. Further, for the next five years a deduction shall be allowed of upto 50 percent of the profit as is debited to the profit and loss account

Direct Tax Benefits - Units

Deductions of Profits (Section 10AA)
Deduction (% of Profit) Years

100
50 50*

0-5
5-10 10-15

*Deduction is allowed provided the amount is credited to a Special Reserve Account which
is created and utilized for the business of the unit within 3 years

Deduction available only in respect of profit and gains from physical exports

Benefits continued
FDI upto100% is allowed through the automatic route for all manufacturing activities in Special Economic Zones (SEZs), except for the following activities : (a) arms and ammunition, explosives and allied items of defence equipments defence aircraft and warships; (b) atomic substances (c) narcotics and psychotropic substances and hazardous chemicals (d) distillation and brewing of alcoholic drinks; and (e) cigarettes/cigars and manufactured tobacco substitutes.

Benefits
Tax holidays under IT act A deduction in respect of certain incomes would be allowed under the new section 80LA, to scheduled banks or foreign banks having an Offshore Banking unit in SEZ . The deduction shall be for 100 percent of income for five consecutive years beginning from the year in which permission/ registration has been obtained under the Banking Regulation Act or the SEBI Act or any other relevant law and 50 percent of income for next five years.

APPLICABLE LAWS
Excise Customs

Indirect tax Benefits EXEMPTIONS

Goods manufactured and exported out of the SEZ units Goods procured from the Domestic Tariff Area into the SEZ Goods imported into a SEZ Goods exported from a SEZ Unit (other than except DTA Sale) Drawback on goods brought from the DTA into a SEZ Unit Taxable Services exported out of the SEZ units to a place outside India Taxable Services procured from the Domestic Tariff Area into SEZ Drawback on services provided from the DTA into a SEZ Drawback on services provided in SEZ by service providers located outside India

Service tax

Central Sales tax

Exemption from CST on purchase of goods from DTA No exemption on sale by SEZ unit into the DTA

Indirect tax benefits are available only for carrying out Authorized Operations

SEZs and EOUs ( differences)

SEZ unit has to be located within the specified zones developed, while EOU unit can be set up at any of over 300 places all over India Minimum investment in plant and machinery and building is Rs 100 lakhs for EOU. This should be before commencement of commercial production. There is no such limit for SEZ Supplies made to EOU by Indian supplier are deemed exports and supplier is entitled to benefits of deemed export. Supplies to SEZ are exports and all export benefits are available

BEWARE
DANGER DANGER DANGER

Serious thoughts
1. If built on agricultural land the farmers will loose their livelihood as they are not skilled labourers it would to tough to relocate them to other jobs. ( 41 SEZs in Maharashtra) 2. Since the companies that operate under SEZ enjoy a lot of tax holidays it would create a burden on the finance ministry as tax collected would be less. 3. It could create socio-economic disparities as the SEZ would accommodate the high and mighty & the poor people will be pushed towards poverty and unemployment

Serious thoughts continued

In the name of free trade and inviting global investors, we are going to experience the meagre benefits rather than mega profits to our nation Environmental degradation

Example (a critical approach) CHINA

In just thirteen years, between 1992 and 2005, twenty million farmers were laid off agriculture due to land acquisition After growing at a phenomenal rate of around 28 percent for the last 25 years, Shenzen is now paying a huge cost in terms of environment destruction, soaring crime rate and exploitation of its working class, mainly migrants. Foreign investors were lured to Shenzen by cheap land, compliant labour laws and lax or ineffective environmental rules. In 2006, the United Nations Environment Programme designated Shenzen as a 'global environmental hotspot', meaning a region that had suffered rapid environmental destruction.

FDI upto100% is allowed through the automatic route for all manufacturing activities in Special Economic Zones (SEZs), except for the following activities : (a) arm

Side effects
many turn to physical exploitation after being laid off. Mortgage slaves As cheaper imports have already played havoc with the livelihoods of artisan sector of the economy and cheaper imports into DTA from SEZs will also adversely affect the domestic industry Free labour laws in chinese zones ( high exploitation)

Some thoughts
58000 crores p/a 100 hectare= 100000 jobs Conversion places eg Mahindra SEZ in Jaipur BUT remember Raigarh and nandgram controversy So what to do you say SEZs or no SEZS or some new models for agriculture based economies