by Bridl360 A special economic zone (SEZ) is a region where trade and business regulations differ from those in the rest of the nation. SEZs are designated areas within a nation’s borders with the objectives of improving trade balance, employment, attracting more investment, creating jobs, and having efficient administration. Financial measures are put in place to encourage businesses to locate in the zones. Investing, taxation, trading, quotas, customs, and labour laws are often covered under these policies. Companies may also be given tax holidays, which enable them to a period of reduced taxation after locating in a zone.
BENEFITS OF SETTING UP BUSINESS IN SEZ
The following are the advantages of setting up of business in SEZ:
- Exemption from Central Sales Tax
- Exemption from Service Tax
- single-window clearance from Central and State governments
- Exemption from the state’s sales tax and other taxes as permitted by the relevant state governments
- Duty-free imports and domestic purchases of goods for the development, use, and maintenance of SEZ units
- Section 115JB of the Income Tax Act provides for an exemption from the minimum alternate tax.
- Through recognized banking channels, SEZ units can borrow from third parties for commercial purposes up to USD 500 million per year without any maturity restrictions.
- Section 10AA of the Income Tax Act provides SEZ units with a 100% income tax exemption on export income for the first five years, followed by a 50% exemption for the following five years and a 50% deduction on reinvested export profit for the following five years.
WHAT IS THE LAW REGULATING SEZ?
In terms of trade tariffs, duties, and operations, a SEZ is treated as foreign territory. All regulatory and legal facets of SEZs, as well as the SEZs’ units, are governed by the SEZ Act of 2005.
WHAT DOES SEZ MEAN IN INDIA? CHARACTERISTICS OF A SPECIAL ECONOMIC ZONE
One of the key goals of SEZs was to increase foreign investment and support a favourable environment for exports. SEZs are built with top-notch infrastructures, such as storage, transportation, and roadways, and they draw foreign investors, which promotes economic growth.
- Businesses that choose to locate in SEZs are eligible for benefits, such as free energy, water, a subsidy on land prices, etc.
- In terms of trade operations, duties, and tariffs, these economic zones are categorised as duty-free industrial parks.
- The majority of the time, firms are exempt from paying customs duty when importing capital items, raw materials, consumable spare parts, etc.
- SEZs may be exempt from paying sales tax and service tax on the sale or purchase of products or services.
- Any provision of products, services, or both to a SEZ unit is zero-rated. In other words, supplies made to SEZs are regarded as exports and are not subject to the Goods and Services Tax (GST).
- Employer-friendly labour rules are one of the key characteristics of special economic zones. For instance, in addition to the other requirements outlined in the Industrial Disputes Act, of 1947, no strikes are permitted in SEZ units without providing the employer six weeks’ notice. This is because these businesses are public utility services”.
WHAT ARE THE REQUIREMENTS FOR SETTING UP AN SEZ?
The developer is required to get a certificate indicating the following from the relevant State Government or its authorised agency:
- Legal ownership
- Permanent rights to develop the specified region as an SEZ
- The specified space is free from encumbrances.
- The State Government must specify if the proposed territory is in a reserved or ecologically sensitive area, as determined by the relevant authorities when advising a plan for the establishment of a Special Economic Zone on the Board. The person must get the State Government’s consent within six months of the date the Board approves a proposal for the establishment of an SEZ.
TYPES OF SEZ
The World Bank created the following table to clarify distinctions between types of special economic zones:
| Type [5] | Objective | Size | Typical Location | Typical Activities | Markets |
|---|---|---|---|---|---|
| FTZ | Support trade | <50 hectares | Port of entry | Entrepôts and trade-related | Domestic, re-export |
| EPZ (traditional) | Export manufacturing | <100 hectares | None | Manufacturing, processing | Mostly export |
| EPZ (single Unit/free enterprise) | Export manufacturing | No minimum | Countrywide | Manufacturing, processing | Mostly export |
| EPZ (hybrid) | Export manufacturing | <100 hectares | None | Manufacturing, processing | Export, Domestic |
| Free port/SEZ | Integrated development | >1000 hectares | None | Multi-use | Internal, domestic, export |
| Urban enterprise zone | Urban revitalization | <50 hectares | Urban/rural | Multi-use | Domestic |
WHERE ARE THE SEZs IN INDIA?
Eight operational special economic zones (SEZs) are currently located in India at Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta (West Bengal), and Noida (Uttar Pradesh). Additionally, a SEZ in Indore, Madhya Pradesh, is now operational.
In addition, 18 approvals have been given for the setting up of SEZs 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 (UP), Vishakhapatnam and Kakinada (Andhra Pradesh), Vallarpadam/Puthuvypeen (Kerala), Hassan (Karnataka), Jaipur and Jodhpur ( Rajasthan) on the basis of proposals received from the state governments.
CONCLUSION
The country’s economic activity has improved significantly as a result of SEZs, especially by making exports competitive, as shown by the increase in India’s share of global manufacturing exports compared to a decade ago. Over the past few years, the industry has experienced rapid expansion that has surpassed the growth of the GDP as a whole. In terms of exports, India is present in important sectors like chemicals and engineering products.
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