Special Economic Zones (SEZs)

Considering the need to enhance foreign investment and promote exports from the country and realising the need that level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally, the government had in April 2000 announced the introduction of Special Economic Zones policy in the country, deemed to be foreign territory for the purposes of trade operations, duties and tariffs.

SEZs when operational are expected to offer high quality infrastructure facilities and support services, besides allowing for the duty free import of capital goods and raw materials. Additionally, attractive fiscal incentives and simpler customs, banking and other procedures are offered in such zones. Setting up of SEZs is also treated as an infrastructure development activity and offered same incentives.

Salient features of the Indian SEZ initiative include:

• Unlike most of the international instances where zones are primarily developed by Governments, the Indian SEZ policy provides for development of these zones in the government, private or joint sector. This offers equal opportunity to both Indian and international private developers.

• For greenfield SEZs, the Government has specified a minimum preferable area of 1,000 hectares. However, for sector specific SEZs, there is no restriction of minimum area.

• 100 per cent FDI is permitted for all investments in SEZs, except for activities under the negative list.

• SEZ units are required to be positive net foreign exchange earners and are not subject to any minimum value addition norms or export obligations.

• Goods flow into the SEZ area from Domestic Tariff Area (DTA) will be treated as exports and goods coming from the SEZ area into DTA are treated as imports.

Currently, a number of SEZ projects are coming up in the country. The government has given a go-ahead for around 17 SEZs to be set up in the private sector or the joint sector. Of these, the projects at Positra (Gujarat), Vishakhapatnam (Andhra Pradesh), Indore (Madhya Pradesh) and Navi Mumbai (Maharashtra) are in advanced stages of planning and development, while the others are preparing to get off the ground.

Incentives and Benefits

Besides providing state-of-the-art infrastructure and access to a large well-trained and skilled work force, the SEZ policy also provides enterprises and developers with a favourable and attractive framework of incentives:

• 100% income tax exemption for a block of five years and an additional 50% tax exemption for two years thereafter

• 100% FDI in the manufacturing sector permitted through automatic route, barring a few sectors.

• External commercial borrowings by SEZ units upto US$500 million in a year without any maturity restrictions through recognized banking channels.

• Facility to retain 100% foreign exchange receipts in Exchange Earners’ Foreign Currency Account.

• 100% FDI permitted to SEZ franchisee in providing basic telephone services in SEZs.

• No cap on foreign investment for small scale sector reserved items.

• Exemption from industrial licensing requirements for items reserved for the SSI sector.

• No import licence requirements

• Exemption from customs duties on import of capital goods, raw materials, consumables, spares etc

• Exemption from Central Excise duties on procurement of capital goods, raw materials, consumable spares etc., from the domestic market.

• No routine examinations by Customs for export and import cargo.

• Facility to realize and repatriate export proceeds within 12 months.

• Profits allowed to be repatriated without any dividend-balancing requirement.

• Job work on behalf of domestic exporters for direct export allowed.

• Subcontracting both domestic and international is permitted; this facility is available to jewellery units as well.

• Exemption from Central Sales Tax and Service Tax

• Facilities to set up off-shore banking units in SEZs.

Incentives to Developers

• Exemption from duties on import /procurement of goods for the development, operation and maintenance of SEZ.

• Income tax exemption for a block of 10 years in 15 years.

• Exemption from Service Tax

• FDI to develop townships within SEZs with residential, educational, health care and recreational facilities permitted on a case-to-case basis.

Source : http://meaindia.nic.in/indiapublication/Special%20Economic.htm