SPECIAL
ECONOMIC
ZONES
Presented by:-
INTRODUCTION
A Special Economic Zone in short SEZ is a geographical
region that has economic laws in matters related to export and
import that are more liberal than a country’s typical economic
laws.
Within SEZs, 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.
The goal is an increase in Foreign Investment.
Goods and services coming into SEZs from the domestic
tariff area are treated as exports from India and goods and
services rendered from the SEZ to the domestic tariff area are
treated as imports into India.
SEZs are projected as duty free area for the purpose of
trade, operations, duty and tariffs.
SEZ – A favoured destination
Ha
rk
ss
o
ew
le
Fr
ram
Fiscal Thrust on self-
ee
yF
incentives & certification &
O
pe
regulatory lic in-zone
rat
Po
benefits empowerment
ing
l
tia
E
ren
nv
SEZ
efe
iro
nm
Pr
en
t
Integrated Infrastructure
Self-contained &
Self-managed
India provides boldest policy framework in 55 years
HISTORY OF SEZ
The world first known instance of SEZ have been found in an industrial
park set up in Puerto Rico in 1947.
In the 1960s, Ireland and Taiwan followed suit, but in the 1980s China
made the SEZs gain global currency with its largest SEZ being the
metropolis of Shenzhen.
From 1965 onwards, India experimented with the concept of such units in
the form of Export Processing Zones (EPZ).
But a revolution came in 2000, when Murlisone Maran, then Commerce
Minister, made a tour to the southern provinces of China.
After returning from the visit, he incorporated the SEZs into the Exim
Policy of India.
Five year later, SEZ Act (2005) was also introduced and in 2006 SEZ
Rules were formulated.
SEZ IN INDIA
The SEZs in India were established with a view to bring expertise for the country’s
export sector . For this a policy was introduced on 01.04.2006. As to these policies the
government has set-up SEZs in public , private, joint sector or by State Governments.
In this regard some of the existing Export Processing Zones were converted into SEZs.
List of SEZs in India –
Kandla and Surat (Gujarat)
Cochin (Kerala)
Santa Cruz (Mumbai Maharashtra)
Falta (West Bengal)
Chennai (Tamil Nadu)
Vishakhapatnam (Andhra Pradesh)
Noida (Uttar Pradesh)
Nanguneri and Tiruneilveli (Tamil Nadu)
SALIENT FEATURES
A designated duty free enclave and to be treated as foreign territory for trade
operations and duties and tariffs
No licence required for import
Manufacturing, trading or service activity allowed
SEZ unit to be positive net foreign exchange earner within three years
Performance of the units to be monitored by a Committee headed by
development Commissioner and consisting of Customs
No fixed wastage norms
Full freedom for subcontracting including subcontracting abroad
Duty free goods to be utilised in 5 years
SALIENT FEATURES (Contd.)
Job work on behalf of domestic exporters for direct exports allowed
Contract farming allowed agriculture units
No routine examination by Customs of export & import cargo
No separate documentation required for Customs and Exim Policy
Support service like banking, post office, clearing agents etc. provided in
Zone Complex
Developed plots and ready to use built up space
TYPES OF SEZs
Free trading and warehousing zones – focus on trading and warehousing to
create trade related infrastructure to facilitate import and export of goods and
services with freedom to carry out trade transactions in free currency.
SEZ for a multi-product 2(za) of SEZ rules, 2006 – where units may be set
up for manufacture of two or more goods or rendering of two or more services
in a sector.
SEZ for sector specific 2(zb) of SEZ rules, 2006 – means exclusively for one
or more products or services in a sector.
SEZ in a port or airport 2(zc) of SEZ rules, 2006 – means a SEZ in an
existing port or airport for SEZ.
Facilities to SEZ Developers
100% FDI allowed for : townships and recreational facilities on a case to
case basis, franchise for basic telephone service in SEZ
Income Tax Benefit under (80 IA) to developers for any block of 10 years
in 15 years
Duty free import/domestic procurement of goods for development,
operation and maintenance of SEZs
Exemption from Service Tax
Income of infrastructure capital fund/company from investment in SEZ
exempt from Income Tax
Facilities to SEZ Developers
(Contd.)
Investment made by individuals etc in a SEZ company also
eligible for exemption u/s 88 of IT Act
Developer permitted to transfer infrastructure facility for
operation and maintenance
Generation , transmission and distribution of power in SEZs
allowed
Full freedom in allocation of space and built up area to approved
SEZ units on commercial basis
Authorised to provide and maintain service like water, electricity,
security, restaurants and recreation centres on commercial lines.
Facilities to SEZ
Enterprises(Contd.)
Customs and Excise :
SEZ units may import or procure from the domestic sources, duty free, all
their requirements of capital goods, raw materials, consumables, spares,
packing materials, office equipment etc. for implementation of their project in
the Zone without any license or specific approval
Duty free import / domestic procurement of goods for development, operation
and maintenance of SEZ units
Goods imported / procured locally duty free could be utilised over the
approval period of 5 years
Domestic sales by SEZ units will now be exempt from SAD
Income tax :
100% Income-Tax exemption for first 5 years and 50% for 2 years thereafter.
Facilities to SEZ Enterprises
(Contd.)
Foreign Direct Investment :
100% foreign direct investment is freely allowed in manufacturing sector
in SEZ units under automatic route, except prohibited items
No cap on foreign investments for SSI reserved items
Central Sales Tax Act :
Exemption to sales made from Domestic Tariff Area to SEZ units
Service Tax :
Exemption from Service Tax to SEZ units
Off-Shore Banking (OBUs) :
Setting up of Off-Shore Banking Units allowed in SEZs
OBUs entitled for 100% Income-Tax exemption for 3 years & 50% for
next 2 years
Facilities to SEZ Enterprises
(Contd.)
Banking / External Commercial Borrowings :
External commercial borrowings by units up to $ 500 million a year
allowed without any maturity restrictions
Freedom to bring in export proceeds without any time limit
Flexibility to keep 100% of export proceeds in EEFC account. Freedom
to make overseas investment from it
Exemption from interest rate surcharge on import finance
SEZ units allowed to ‘write-off’ unrealized export bills
Facilities to SEZ Enterprises
(Contd.)
Environment :
SEZs permitted to have non-pollution industries in IT, and recreational facilities
like golf courses, hotels and non-pollution service industries in the Coastal
Regulation Zone area
Exemption from public hearing under Environment Impact Assessment
Notification
Companies Act :
Enhanced limit of Rs. 2.4 crores per annum allowed for managerial remuneration
Regional office of Registrar of Companies in SEZs
Exemption from requirement of domicile in India for 12 months prior to
appointment as Director
ADVANTAGES
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.
Goods imported/procured locally are duty free and could be utilized
over the approval period of 5 years.
Exemption from customs duty on import of capital goods, raw
materials, consumables, spares, etc.
The SEZ unit is permitted to realize and repatriate to India the full export
value of goods or software within a period of twelve months from the date of
export.
No routine examination by Customs officials of export and import cargo.
The Government has exempted SEZ Units from the payment of stamp duty
and registration fees on the lease/license of plots.
Enhanced limit of Rs. 2.40 crores per annum allowed for managerial
remuneration.
100% FDI is also provided in the manufacturing sector.
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.
SEZs Terms And Conditions
Only units approved under SEZ scheme would be permitted to be located in
SEZ.
The SEZ units shall abide by local laws, rules, regulations or laws in
regard to area planning, sewerage disposal, pollution control and the like.
They shall also comply with industrial and labour laws as may be locally
applicable.
Such SEZ shall make security arrangements to fulfill all the requirements
of the laws, rules and procedures applicable to such SEZ.
The SEZ should have a minimum area of 1000 hectares and at least 35 %
of the area is to be earmarked for developing industrial area for setting up
of processing units.
Minimum area of 1000 hectares will not be applicable to product specific
and port/airport based SEZs.
Detailed guidelines on setting up of SEZ in the Private/Joint/State Sector is
given in Appendix 14-II.N of Handbook of Procedures Volume I.
Role of State Government in
Establishment of SEZ Units
State Governments play a very active role to play in the establishment of SEZ
unit.
Any proposal for setting up of SEZ unit in the Private / Joint / State Sector is
routed through the concerned State government who in turn forwards the same
to the Department of Commerce with its recommendations for consideration.
Before recommending any proposals to the Ministry of Commerce & Industry
(Department of Commerce), the States Government properly checks all the
necessary inputs such as water, electricity, etc required for the establishment of
SEZ units.
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.
SEZ Act 2005
Introduction -
The policy relating to SEZs was earlier contained in Foreign Trade
Policy. However, to give a long term and stable policy framework with
minimal regulation, the SEZ Act was enacted. In 2005, a
comprehensive Special Economic Zones Act 2005 was passed by
Parliament in May 2005. The SEZ Act 2005 and the rules of the SEZ
Act came into force from February 10, 2006. Investment of the order
of Rs 100,000 crore over the next three years with an employment
potential of over 500,000 was also expected from the new SEZs, apart
from indirect employment during construction period of the SEZs .
SEZ Act 2005
The SEZ Act 2005 is mainly divided into 7 different chapters and 3 schedules.
Chapter I Preliminary
Chapter II Establishment Of Special Economic Zone
Chapter III Constitution Of Board Of Approval
Chapter IV Development Commissioner
Chapter V Single Window Clearance
Special Fiscal Provisions For Special
Chapter VI
Economic Zones
Chapter VII Special Economic Zone Authority
Chapter VIII Miscellaneous
Schedule I Enactments (See Sections 7 And 54)
Modifications To The Income-Tax Act,
Schedule II
1961.
Amendment To Certain Enactments (See
Schedule III Section 56)
SEZ Controversy
Land, especially agricultural land is a very sensitive issue in India.
There are millions of people whose livelihood depends on
agricultural land. But the introduction of SEZ in India has resulted
in the dispossession of agricultural land and has affected the
livelihood of farmer at large. In against of this, farmers first
protested to safeguard their interests through litigation and court
cases challenging the establishment of SEZs. But later on, the
resistance against SEZ in India became massive when political
parties also joined the farmers.
Jamnagar Incidence -
In November 2006, farmers from the Jamnagar District in Gujarat
moved the High Court of Gujarat and later to the Supreme Court in
order to challenge the setting-up of a 10,000-acre (approx. 4,000-ha)
SEZ by Reliance Infrastructure. They claimed that the acquisition of
large tracts of agricultural land in the villages of the district not only
violated the Land Acquisition Act of 1894, but was also in breach of
the public interest. This led the Government to “consider” putting a
ceiling on the maximum land area that can be acquired for multi-
product zones and decide to “go slow” in approving SEZs.
Nandigram Violence -
The Nandigram violence is another famous incidence related to
SEZ controversy. Nandigram is a rural area in Purba Medinipur
district of the Indian state of West Bengal. It is located about 70 km
south-west of Kolkata, on the south bank of the Haldi River,
opposite the industrial city of Haldia.
In 2007 the West Bengal government decided to allow Salim
Group to set up a chemical hub at Nandigram under the SEZ
policy. Farmers of that village were against it. So, on the order of
the Left Front government on 14 March, 2007, more than 3,000
heavily armed police stormed the Nandigram area.
The main objective was to remove the protestors in order to
expropriate 10,000 acres of land for a Special Economic Zone
(SEZ) to be developed by the Indonesian-based Salim Group.
During this incidence, police shot dead at least 14 villagers and
wounded 70 more including children and women.
The above given examples show the controversies associated with
SEZs. No doubts that these commercial hubs started with a lot of
premature praise and have now became a bone of contention which
is readily exploited by the political forces to the detriment of the
peasants, who fear losing their means of livelihood.
Are SEZ's controlled by Government ?
In all SEZ's , the statutory functions are
controlled by the Government. Government also
controls the operation and maintenance function
in the 7 Central Government controlled SEZs. In
rest of the operation and maintenance are
privatised.
WHO MONITOR THE SEZ UNITS?
Performance of the SEZ units monitored by a
Unit Approval Committee consisting of
Development Commissioner, Custom and
representative of State Govt. on annual basis
