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Special Economic Zone. A Conduit for Exceptional Economic Growth. Premise.

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Special economic zone

Special Economic Zone

A Conduit for Exceptional Economic Growth


Premise
Premise

  • Special Economic Zones (SEZ) are growth engines that can boost manufacturing, augment exports and generate employment. The SEZs require special fiscal and regulatory regime in order to impart a hassle free operational regime encompassing the state of the art infrastructure and support services.

Contd.


Premise1
Premise

  • On this backdrop Special Economic Zone Act, 2005 was introduced and made effective from 10th February 2006 alongwith notification of SEZ Rules

  • SEZ Act has been enacted to provide for the establishment, development and management of the zone including Free Trade Zone & Warehousing Zone for the ‘promotion of exports’ and for matters connected therewith or incidental thereto

Contd.


Premise2
Premise

  • It is anticipated that this new regime will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.

Contd.


Premise3
Premise

  • SEZ is a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs.


Fiscal benefits of operating in sez indirect tax
Fiscal Benefits of operating in SEZ (Indirect tax)

  • Any goods or services exported out of the SEZ units or imported into the SEZ units will be exempt from the payment of taxes, duties and cess leviable under specified Acts.

  • Goods or services procured from the Domestic Tariff Area will also be exempt from the payment of taxes, duties or cess leviable under specified Acts.

Contd.


Fiscal benefits of operating in sez indirect tax1
Fiscal Benefits of operating in SEZ (Indirect tax)

  • Exemption from any duty of customs on goods imported into or service provided in a SEZ

  • Exemption from any duty of customs on goods exported from or service provided from a unit in a SEZ

  • Exemption from any duty of excise on goods brought into SEZ from DTA

Contd.


Fiscal benefits of operating in sez indirect tax2
Fiscal benefits of operating in SEZ (Indirect tax)

  • Drawback on goods brought or services provided from the DTA into a SEZ

  • Drawback on services provided in SEZ by service providers located outside India

  • Exemption from Service tax on taxable services provided

  • Exemption from the levy of taxes on the sale or purchase of goods under Central Sales tax Act.

Contd.


Fiscal benefits of operating in sez indirect tax3
Fiscal Benefits of operating in SEZ (Indirect tax)

  • Explicit elucidation of the terms and conditions subject to which exemptions, concessions, drawback or other benefits available notified vide SEZ Rules


Fiscal benefits of operating in sez direct tax
Fiscal Benefits of operating in SEZ (Direct tax)

  • Exemption from income tax on 100% of profits derived from exports for 5 consecutive years and 50% for further 5 consecutive years. Additionally for further 5 years exemption available to the tune of creation of Re-investment Reserve and utilization of Reserve so created for specified purpose subject to maximum of 50% of profits derived from exports.

Contd.


Fiscal benefits of operating in sez direct tax1
Fiscal Benefits of operating in SEZ (Direct tax)

  • 100% deduction on profits and gains derived by an undertaking from development of SEZ for 10 consecutive years

  • 100% deduction of such income of OBU/IFSCs as specified for 5 consecutive years

  • Exemption of Capital Gains on transfer of assets in cases of shifting of Industrial Undertaking from urban area to any SEZ

Contd.


Fiscal benefits of operating in sez direct tax2
Fiscal Benefits of operating in SEZ (Direct tax)

  • Immunity to SEZ units from applicability of provisions of Minimum Alternative tax

  • Exemption from levy of tax on distributed profits of either SEZ developer of unit

  • Exemption from income tax on interest received by a Non-resident or person not ordinarily resident on deposit in OBUs

  • Exemption from Securities transaction tax in case the taxable securities transactions are entered into by a non-resident through the International Finance Service centre


Benefits to dta suppliers
Benefits to DTA Suppliers

  • Supplies from Domestic Tariff Area (DTA) to SEZ to be treated as physical export. DTA supplier would be entitled to :

    • Drawback/DEPB

    • CST Exemption

    • Exemption from State Levies

    • Benefits under Excise

    • Income Tax benefit as applicable to physical export


Supplies to dta by sez units
Supplies to DTA by SEZ units

  • Any goods removed from a SEZ to DTA shall be chargeable to duties of customs as leviable on such goods when imported and the rate of duty and tariff valuation applicable to goods removed from a SEZ shall be the rate and tariff valuation in force as on the date of such removal. Valuation of goods and/or services cleared into DTA shall be determined in accordance with provisions of customs act and rules made there-under as applicable to goods when imported into India.


Miscellaneous
Miscellaneous

  • 100% foreign direct investment under the automatic route is allowed in manufacturing sector in SEZ units except arms and ammunition, explosive, atomic substance, narcotics and hazardous chemicals, distillation and brewing of alcoholic drinks and cigarettes , cigars and manufactured tobacco substitutes.

Contd.


Miscellaneous1
Miscellaneous

  • A SEZ will be deemed to be a territory outside customs territory of India for the purpose of undertaking authorized operations.

  • A SEZ will be deemed to be a port, ICD, land customs stations as the case may be.

Contd.


Miscellaneous2
Miscellaneous

  • Agriculture/Horticulture processing SEZ units allowed to provide inputs and equipments to contract farmers in DTA to promote production of goods as per the requirement of importing countries.

  • Any private/public/joint sector or State Government or its agencies can set up Special Economic Zone (SEZ).

Contd.


Miscellaneous3
Miscellaneous

  • Documentation for various activities of the units has been reduced to the barest minimum with an emphasis on self-certification

  • The foreign trade policy restrictions on STE shall not apply to SEZ manufacturing units except Iron ore.

  • The state govt. may grant exemption from the state taxes, levies and duties


Sez disclaimer
SEZ Disclaimer

  • The SEZ unit shall achieve Positive Net Foreign Exchange to be calculated cumulatively for a period of 5 years from the commencement of production . SEZ units have to achieve positive net foreign exchange earning as per the formula given in SEZ Rules. For this purpose, a Legal Undertaking is required to be executed by the unit with the Development Commissioner. The units have to provide periodic reports to the Development Commissioner and Zone Customs as provided in SEZ Rules.


Overview of present sezs
Overview of Present SEZs

  • Santa Cruz (Maharashtra),

  • Cochin (Kerala),

  • Kandla and Surat (Gujarat),

  • Chennai (Tamil Nadu),

  • Visakhapatnam (Andhra Pradesh),

  • Falta (West Bengal)

  • Nodia (Uttar Pradesh) and

  • Indore ( Madhya Pradesh )


Upcoming sezs
Upcoming SEZs

In addition 18 approvals have been given for setting up of SEZ at

  • Positra (Gujarat),

  • Navi Mumbai and Kopata (Maharashtra),

  • Nanguneri (Tamil Nadu),

  • Kulpi and Salt Lake (West Bengal),

  • Paradeep and Gopalpur (Orissa),

  • Bhadohi, Kanpur, Moradabad and Greater Noida (U.P.),

  • Vishakhapatnam and Kakinada (Andhra Pradesh),

  • Vallarpadam/Puthuvypeen (Kerala)

  • Hassan ( Karnataka),

  • Jaipur and Jodhpur ( Rajasthan)


Conclusion
Conclusion

  • SEZ operations are in existence for almost 5 years now though, all operational as well as financial benefits were governed by the Foreign Trade policy and the respective fiscal statutes. It cannot be doubted that with notification of this special, separate and transparent Act and Rules elucidating comprehensive terms and conditions of operation including fiscal benefits, investments as targeted can be meet, however, to see investments in line with Chinese SEZs establishments, feel that not only much needs to be done to give effectiveness to single window clearance enactments but liberalization in labor and allied laws must also be made and adhered too within the zone apart from creating & maintaining world class infrastructure.


Thank you
Thank you

Deoki Nandan Muchhal


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