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LET'S TALK SEZs in India

Updated: Dec 13, 2022

Special Economic Zones (SEZs) are geographically bound zones; these are an engine for economic growth supported by standard infrastructure accompanied by an attractive budgetary package, with minimum regulations at the Central & State level. These are duty-free areas for trade, operations, and other such activities.


The law has prohibited these SEZ units from the customs territory of India.


Goods & services moving into SEZs from the Domestic tariff area (DTA) are considered exports from India. Whereas goods & services moving outside the SEZs to the DTA are regarded as imports in India.


SEZs cover a broad range of zone types like Free-Trade Zones (FTZ), Export Processing Zones (EPZ), Industrial Estates (IE), Free Ports, Free Zones (FZ), Urban Enterprise Zones & many others. Each of the Special Economic Zones is unique. If an investor examines each of the SEZs, they may find that specific SEZs have specific advantages that complement their business plans in India.


The Evolution of SEZs:-


In 1979, China opened up its first SEZ in Shenzhen while giving a kick start to enhance capitalist investments to seek a foothold in the international market.

In the early stage, India relied on the concept of EPZs (Export Processing Zones), which did not have a significant influence on foreign investors.

In 1965, the first zone was set up in Kandla (India), followed by Santa Cruz Export Processing Zone, which came into operation in 1973. In the 1980s, the government had set up five more zones. In 1998, Surat EPZ became operational.


In 2000, SEZ policy was announced. Due to the introduction of this Act, EPZs were converted to SEZs. Initially, under this scheme, EPZs at Kandla, Santa Cruz, Cochin & Surat were converted into SEZs; thereafter, other existing EPZs were also converted into SEZs.


The SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February 2006, enabling fiscal benefits to projects.


What is the administrative setup of SEZs?


SEZs functions are governed by a three-tier administrative setup, shown as follows:-


In which states are these SEZs (operational) located in India?


SEZs currently operational in India are Andhra Pradesh, Chandigarh, Chhattisgarh, Gujarat, Haryana, Kerala, Karnataka, Maharashtra, Madhya Pradesh, Odisha, Punjab, Rajasthan, Tamil Nadu, Telangana, Uttar Pradesh, and West Bengal.


What are few advantages to SEZs?


SEZs provide many incentives and facilities to attract investments like

  • 100% Income Tax exemption on export income for SEZ units for first five years, 50% for next five years;

  • Exemption from MAT (Minimum Alternate Tax), DDT (Dividend Distribution Tax), CST (Central Sales Tax), Service Tax & many more;

  • For advancement, operation & maintenance of SEZ units, an allowance of duty-free import or domestic procurement of goods;

  • Central & State level approvals are made easy with single-window clearances, etc.


Why do SEZs provide such incentives and facilities? What are the benefits of SEZs?


These are established to trigger a massive flow of foreign & domestic investment in SEZs, in infrastructure & productivity, resulting in the generation of an additional economic activity and give rise to employment opportunities.

They play a key role in the economic development of a country.


SEZs help promote exports of goods & services and encourage investment from domestic and foreign sources.


Who can set up an SEZ?


It can be set up jointly or individually by the Central Government, a state government, or any other body, including a foreign company, to produce, render services or for both of these reasons, or as an FTWZ (Free Trade and Warehousing Zone).


In the Department of Commerce (Government of India), an application is to be made to the concerned State Government & Board of Approval in Form-A.


As per the "SEZ Rules," specify the minimum land area required for setting up an SEZ. The requirement depends on the type of SEZ to be developed. For further information regarding SEZ Rules, you can refer to the official website of SEZs (www.sezindia.nic.in).


Summary:-


SEZs have proven to be a success story in India, especially for the IT/ITES sector. The government must keep supporting these hubs to encourage growth & development of Service SEZs, given the skillset of the Indian workforce in this sector, to create substantial job opportunities.


The government must keep on making required amendments to the existing SEZ policy to fulfill the Act's objectives with the utmost interest of the general public.



Author: Chhaya Agrawal

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