Special Economic Zone (SEZ)
In order to attract larger foreign investments in India and overcome the shortcomings experienced on account of the multiplicity of controls and clearances, absence of world-class infrastructure and an unstable fiscal regime, the Special Economic Zones (SEZs) policy was announced in April 2000.
What is a Special Economic Zone? Who can set up SEZs?
Special Economic Zone (SEZ) is a notified duty free enclave, housing units which predominantly engage in export operations. An SEZ is considered deemed foreign territory for the purposes of trade operations, duties and tariffs. Any private/public/joint sector or State Government or its agencies/foreign company can set up an SEZ.
Following are the terms and conditions for setting up an SEZ:
• The SEZ units shall abide by local laws, rules, regulations or bye-laws in regard to area planning, sewerage disposal, pollution control etc. They shall also comply with industrial and labour laws as may be locally applicable.
• Such SEZ shall make security arrangements to fulfil all the requirements of the laws, rules and procedures applicable to such SEZ.
• Only units approved under SEZ scheme would be permitted to be located in SEZ.
• The SEZ should have a minimum area of 1000 hectares and at least 25% of the area is to be earmarked for developing industrial area for setting up of units. Minimum area of 1000 hectares will not be applicable to product specific and port/airport based SEZs.
• Wherever the SEZs are landlocked, an Inland Container Depot (ICD) will be an integral part of SEZs.
Need for an SEZ Act
A comprehensive draft SEZ Bill was prepared in order to build confidence in investors and signal the Government's commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating greater economic activity and employment through the establishment of SEZ. The Minister for Commerce and Industry as well as senior officials held many meetings in various parts of the country for this purpose. The Special Economic Zones Act, 2005, was passed by the Parliament in May, 2005 which received Presidential assent on the 23 June, 2005. After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to Central as well as State Governments.
Objectives of the SEZ Act are:
• Generation of additional economic activity
• Promotion of exports of goods and services
• Promotion of investment from domestic and foreign sources
• Creation of employment opportunities
• Development of infrastructure facilities
SEZ Rules
Different minimum land requirements have SEZ rules for different class of SEZs. Every SEZ is divided into a processing area where alone the SEZ units would come up and the non-processing area where the supporting infrastructure is to be created.
The SEZ rules provide for:
• Single window clearance for setting up a unit in an SEZ.
• Simplified procedures for development, operation, and maintenance of the SEZs and for setting up units and conducting business in SEZs.
• Simplified compliance procedures and documentation with an emphasis on self certification.
• Single window clearance for setting up of an SEZ.
• Single window clearance on matters relating to Central as well as State Governments.
Incentives available to SEZ Units
A number of benefits have been given to attract quality investments to the firms setting operations in an SEZ. They are mentioned below:
• Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units.
• 100% Income tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
• Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
• External commercial borrowing by SEZ units up to US $500 million in a year without any maturity restriction through recognized banking channels.
• Exemption from central sales tax.
• Exemption from service tax.
• Single window clearance for Central and State level approvals.
• Exemption from State sales tax and other levies as extended by the respective State Governments.
In the Annual Supplement 2013-14 to the Foreign Trade Policy 2009-14, following additional measures were taken to revive investors’ interests in SEZs:
• The minimum land area requirement was decided to be reduced by half. This was done in view of the acute difficulties in aggregating large tracts of uncultivable land for setting up SEZs. This is with regard to with the multi-product SEZ from 1000 hectares to 500 hectares and for sector specific SEZ from existing 100 hectares to 50 hectares.
• A graded scale for minimum land criteria has been decided to be introduced which would permit SEZ an additional sector for each contiguous 50 hectare parcel of land.
• Sectoral broad-branding is being introduced in order to provide further flexibility to set up additional units in a sector specific SEZ and related areas under the same sector.
• On the issues relating to the vacancies of land, it has now been decided that additions to the pre-existing structures and activities be undertaken after notification which would be eligible for duty benefits similar to any other activity in SEZ.
• Exports from IT SEZs during the financial year 2012-13 have exceeded Rs. 1.40 lakh crore registering a growth of over 70% over the previous year’s exports. The Government has specifically designed incentives to boost up the growth in Tier-II and Tier-III cities, by doing away with the requirement of 10 hectares of minimum land area and announcing that there would be no minimum land requirement for setting up an IT/ITES SEZ. However, what is to be met is only the minimum built up area criteria.
• There has also been a relaxation in the minimum built up area requirement with the requirement of one lakh square meters to be applicable for the seven major cities i.e. Mumbai, Chennai, Pune, Delhi (NCR), Hyderabad, Kolkata and Bangalore. For the other Category B cities, 50,000 square meters and for remaining cities, only 25,000 square meters built up area norm will be applicable.
• One of the greatest disadvantages in the present SEZ framework was that it did not include an exit policy for the units. However, it has now been decided to permit transfer of ownership of SEZ units, including sale.
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