Special economic zones (SEZs) are regions within countries where tax is reduced, bureaucratic regulation lowered, and incentives offered so that more companies are attracted to that Area. SEZs are specially defined duty-free enclaves for the purpose of trade, operations, duty and tariffs. These zones are self contained and incorporated, having their own infrastructure and support services. An SEZ is a geographical region that has economic laws different from a country’s generally applicable economic laws, with the fundamental objective being an increase in economic growth and activity through increased foreign investment.
The main objectives of the SEZ scheme in India are as following
Generation of additional economic activity
Promotion of goods and services exports
Creation of employment opportunities
Development of infrastructure facilities
Role of State Government in Establishment of SEZ Units
State governments play a dynamic role in establishing SEZ units. Any application for setting up an SEZ unit in the private, joint, or state sector is forwarded through the concerned state government which in turn sends the same to the Ministry of Commerce & Industry (Department of Commerce) with its suggestions for consideration. Before recommending any proposals to the Department of Commerce, the state government checks all the necessary inputs (such as water and electricity) necessary for the establishment of the unit. The state government has to forward the proposal to the Board of Approval with its recommendations. The candidate also has the option to submit the proposal directly to the Board of Approvals. A representative of the state government, who is a member of the Inter-Ministerial Committee on private SEZs, is also consulted while considering the proposal.
Numerous financial and regulatory incentives are provided to developers of the SEZs as well as units within these zones. In addition to the incentives offered by the Central SEZ Policy, state policy offers several additional incentives to the units within these zones.
According to the Indian SEZ Policy, a SEZ may be established by a private company (individual / non-resident Indian / Indian company / foreign company), or state government, or a combination. Within these zones, units may be set-up for the manufacturing of goods, provisioning of services, and other activities including processing, assembling, trading, repairing, reconditioning, and the production of gold/silver/platinum. The Policy allows 100 percent foreign direct investment in most manufacturing activities. If the SEZ developer or members of the developing group seek to engage in foreign direct investment, FDI policies and procedures must be complied with. These are in addition to SEZ policies and measures, which are common with or without FDI.
Various tax benefits are available to SEZ developers, including:
- Exemption from customs and excise duties.
- 100 percent income tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for the first five years, 50 percent for the five years thereafter, and 50 percent of the ploughed back export profit for the next five years.
- Exemption from minimum alternate tax, exemption from dividend distribution tax, exemption from service tax, and exemption from central sales tax (CST) on inter-state purchases of goods.
Besides the above central regulatory establishments, most of the states have or are in the process of enacting their own SEZ policy. The requirement of the state SEZ act or policy is to provide a collection of regulatory frameworks for SEZ development in the state in consonance with the Central Act, provide for economic incentives to SEZ developers and SEZ units, provide a mechanism for single window clearance for SEZ developers, and provide a device for resolving state level matters concerned with labour, pollution, and municipal corporation.
The sectors recognized for the establishment of SEZs comprise Information Technology-enabled services, Electronic Hardware and Software, Nanotechnology, Biotechnology, non-conventional energy equipment, and higher technical education institutes. Industries that present environmental issues may not be established inside SEZs and environmental clearance is a must for all projects except those dealing with ITES.
The company owning and developing the SEZs is responsible for providing water supply and distribution systems and also responsible for the provision and preservation of a sewage disposal system. Dealings within the SEZ area will not be liable for state and local taxes. No stamp duty will be levied on lease/license action regarding the land or built up space.
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