Special Economic Zones

In India, Special economic zones (SEZs) entail certain localities which offer tax and additional incentives towards their resident businesses.

Till the year 2000, India did not have any SEZs but rather had a number of export processing zones (EPZs), which, was quite similar in structure to the modern SEZ, but it failed to pull in many corporations to India.

SEZs, when equipped, are expected to offer premier infrastructure services as well as sustenance services, also authorizing the tariff-free import of goods and raw materials. Additionally, attractive monetary subsidiaries and trouble-free custom tariffs, banking as well as other methods are offered in such business zones. Setting up SEZs is also recognized as communications development approach.

•    SEZs are controlled through a three-tier Organizational Set-up, they are:

•    The supreme controlling entity in the Department is recognized as The Board of Approval.

•    At the district level, The Unit Approval Committee deals with SEZs development and other associated concerns.

•    Every district is controlled by a Development Commissioner, who also controls the Unit Approval Committee.

Since the promulgation of the Act, the Indian government has also acknowledged suggestions for additional, far smaller SEZs, which should be proposed through developers to the Indian Board of Approval.

The SEZ Rules, 2006 lays down the whole process to develop a proposed SEZ or set up a unit in an SEZ. Till September 2017, 221 SEZs are in operation, and by January 2018, a considerable 423 have received formal approval for operation. 

Even though India’s SEZs are somewhat new, they have become significant sourcing as well as manufacturing destinations for foreign investors.

List of Special Economic Zones in India

The government announced the SEZ in April 2000. India’s Special Economic Zone Act, of 2005 furthermore amended the nation’s foreign investment policy and changed its EPZs to SEZs, with prominent zones which include;

SEEPZ (Mumbai); Cochin (Kerala State); Kandla (Gandhidham, Kachchh); Surat (SachinSurat); Madras (Chennai state); Visakhapatnam (Andhra Pradesh state); Falta (West Bengal state); Noida (Uttar Pradesh state); Indore (Madhya Pradesh state); Manikanchan (Salt Lake, West Bengal state); Jaipur(Rajasthan State); Salt Lake Electronic City-SEZ (Kolkata); Mahindra City-SEZ (Chennai state).

Features of SEZs

The key features of Indian Special Economic Zones are;

•    SEZs in India are established by the government, private as well as the joint sector, not like their international counterparts where areas are primarily maintained by their respective governments. This offers equal prospects for both Indian and international players.

•    Government has assigned more or less 1,000 hectares of area for Greenfield SEZs. Though, there is no limitation in the context of the favorable area in constructing sector-specific SEZs.

•    100% of Foreign Direct Investment is permitted for every endowment in Special Economic Zones, aside from activities classified under the unconstructive record.

•    SEZ divisions are compulsory to encouraging net foreign exchange yielders and are not allowed to any least amount of value addition guidelines or export duties.

•    Commodity surge from Domestic Tariff Area (DTA) into an SEZ is acknowledged as exports, as well as commodity surge into DTA from SEZ, are acknowledged as imports.

Benefits of SEZs

The benefits of SEZs are:

•    Full Income tax exemption for 5 years and an extra 50% tax relief for an additional 2 years.

•    The manufacturing industry is permitted an FDI influx of 100% through automatic channels, not including a few industries.

•    Services towards establishing off-shore banking divisions in SEZs.

•    Service Tax as well as Central Sales Tax exemption.

•    External commercial lending of up to US$500 million is permitted for SEZ divisions in a year without any maturity limitations through certified banking networks.

•    No import authorization responsibilities.

•    Services towards sustaining foreign exchange proof of payments of up to 100% in Exchange Earners' Foreign Currency Accounts.

•    SEZ franchisees are permitted 100% FDI in offering customary telephone services in the areas.

•    No restraint of foreign endowments for small-scale industry reticent goods.

•    Tax relief from sectoral authorization compulsions for goods reticent for the SSI industry.

•    Tax relief from the customs tariff on the import of goods, raw products, spare parts, etc.

•    Tax relief from Central Excise tariff on the acquirement of goods, raw products, spare parts, etc from the local market.

•    No regular assessments through Customs for export and import freight.

•    Capacity to understand and repatriate export advances within a year.

•    Revenues are allowed to be repatriated without any dividend assessment requirements.

•    Authorization for Employment prospects for local exporters for direct export.

•    Authorization for off-shoring of local as well as global players. This service is available to the jewelry sector as well.

Procedure for Obtaining SEZ Approval

The procedures for setting up of SEZ in India are:

1.    Any individual willing to establish a Special Economic Zone is required to make a proposal to the State Government. The application for proposal for the establishment of a Special Economic Zone is to be made in form A. The proposal could be made only after finding the area for SEZ. A proposal for establishing SEZ could even directly be made before the Board.

2.    If the proposal is directly made against the Board, the individual, after getting approval from the Board, must obtain the concurrence of the State Government.

3.    On receiving the proposal, the State Government must forward the same to the Board along with its recommendation.

4.    The Central Government has the right to recommend various requirements for establishing of Special Economic Zone. The minimum area of land needed for establishing a business, and terms and conditions for many authorized operations are some of the instances of various requirements which could be prescribed by the Central Government.

5.    Currently, the minimum area requirement for establishing a Special Economic Zone is: 

•    For Multi-sector SEZ, 1000 hectares area is required.

•    For Sector Specific SEZs, 100 hectares area is required.

•    For FTWZ, 40 hectares area is required.

•    For IT/ITES/handicrafts SEZ Biotechnology/non-conventional energy/gems and jewelry Sector, 10 hectares area is required.

6. The Board, after receiving the proposal, might either approve the proposal subjected to such terms and conditions as it might deem fit or can even modify or reject the proposal.

7. Final Action of the Board on receiving the proposal is:

•    When a Board approves the proposal devoid of any modification, in such case, the Board is needed to communicate the approval to the Central Government.

•    When a Board approves the proposal by means of modification, in such case, the Board is needed to communicate the modification to the individual or the State Government of the concerned person. Furthermore, if the modification as proposed through the Board is accepted by the individual or the State Government, the Board is needed to communicate the same to the Central Government.

•    When Board rejects the proposal –

1.    then the Board is needed to record the reason for rejection as well as communicate the same to Central Government. The Central Government consecutively would intimate the same towards the individual or the State Government.

2.    If everything goes well, the Central Government on receiving of communication shall issue a letter of approval on such terms and conditions and duties and entitlements as might be approved by the Board, to the Developer, being the individual or the State Government concerned.

Documents Required

A proposal for establishing a Special Economic Zone must be made in form A along with an essential undertaking and affidavit. The project report should also be submitted.

•    Applicant Name.

•    Special Economic Zone was proposed for the area.

•    Status of the recommendation of the proposal through the State Government, if available.

•    Is the made proposal for formal approval or in-principle approval?

•    Whether it is a multi-product SEZ.

•    Whether it is a sector-specific SEZ? If yes, the details of the sector.

•    Projected investment in the project.

•    Projected export from the project.

•    Projected employment generation from the project.

•    Source of fund of project.

• Applicant's Net worth

•    The extent of FDI, if any.

•    Source of FDI.

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Author:

eStartIndia Team