News Release Details
Special Economic Zone – key to growth & employment
New Delhi 20-Jun-2007
<b>What is an SEZ?</b> A Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. Usually the goal is an increase in foreign investment. One of the earliest and the most famous SEZs were founded by the Government of the People's Republic of China under Deng Xiaoping in the early 1980s. Following the Chinese example, Special Economic Zones have been established in several countries, including Pakistan, India, Iran, Jordan, Poland, Kazakhstan, the Philippines, Russia, and Ukraine. According to World Bank estimates, as of 2007 there are more than 3,000 projects taking place in SEZs in 120 countries worldwide. <b>SEZs in India</b> Considering the need to enhance foreign investment and promote exports from the country and realising the need that a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally, the Government of India announced the Special Economic Zones policy in April 2000. The Policy deems the SEZ to be foreign territory for the purposes of trade operations, duties and tariffs, and provides for setting up of SEZs in the public, private, or joint sector as well as by the State Governments. Government has also converted into SEZs the Export Processing zones located at - <ul><li>Kandla and Surat (Gujarat) </li><li>Cochin (Kerala) </li><li>Santa Cruz (Mumbai–Maharashtra) </li><li>Falta (West Bengal) </li><li>Chennai (Tamil Nadu)</li><li>Visakhapatnam (Andhra Pradesh)</li> <li>Noida (Uttar Pradesh)</li><li>Nanguneri and Tirunelveli (Tamil Nadu) </li></ul>The word "special" mainly means special economic systems and policies. Central Government accords special policies and flexible measures to the SEZs, allowing them to utilise a special economic management system, such as:<ul><li>Special tax incentives </li><li>Greater independence on international trade activities. </li><li>Economic characteristics represented as "4 principles"</li><li>Construction primarily relies on attracting and utilising foreign capital. </li><li>Primary economic firms are sino-foreign joint ventures and partnerships as well as wholly foreign-owned enterprises.</li> <li>Products are primarily export-oriented </li><li>Economic activities are primarily driven by market</li> </ul> <b>SEZ Acts & Rules </b> The SEZ Policy of April 2000 became the precursor for the SEZ Act, 2005. Its main objectives are<ul><li>Generation of additional economic activity</li><li>Promotion of exports of goods and services</li><li>Promotion of investment from domestic and foreign sources</li><li>Creation of employment opportunities</li><li>Development of infrastructure facilities</li></ul>The Act envisages a key role for the State Governments in export promotion and creation of related infrastructure. A single-window SEZ approval mechanism has been provided through a 19-member inter-ministerial SEZ Board of Approval (BoA). It has been constituted by the Central Government in exercise of the powers conferred under the SEZ Act, 2005. The SEZ Rules provide for a minimum land requirement, which is different for the various classes of SEZs. Every SEZ is divided into a processing area where the SEZ units alone would come up, and the non-processing area where the supporting infrastructure is to be created. The SEZ Rules provide for:<ul><li>Simplified procedures for development, operation, and maintenance of the SEZs, and for setting up units & conducting business in SEZs</li><li>Single window clearance for setting up an SEZ</li><li>Single window clearance for setting up a unit in an SEZ</li><li>Single window clearance on matters relating to Central as well as State Governments</li><li>Simplified compliance procedures and documentation with an emphasis on self certification</li><li>Approval mechanism</li></ul>The developer submits the proposal for establishment of SEZ to the concerned State Government. The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the BoA. The applicant also has the option to submit the proposal directly to the Board. All the decisions are taken in the Board by consensus. <b>Administrative set-up </b> The functioning of the SEZs is governed by a three-tier administrative set-up. The BoA is the apex body and is headed by the Secretary, Department of Commerce. The Approval Committee at the Zonal level deals with the approval of units in the SEZs and other related issues. Each Zone is headed by a Development Commissioner, who is the ex-officio chairperson of the Approval Committee. Once an SEZ has been approved by the BoA and the Central Government has notified the area of the SEZ, units are allowed to be set up in the SEZ. All post-approval clearances, including grant of importer-exporter code number, change in the name of the company or implementing agency, broad banding diversification, etc., are given at the Zonal level by the Development Commissioner. The performance of the SEZ units are periodically monitored by the Approval Committee and units are liable for penal action under the provision of Foreign Trade (Development and Regulation) Act, in case of violation of the conditions of the approval. <b>Incentives and facilities </b> Duty free import/ domestic procurement of goods for development, operation and maintenance of SEZ units 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years. Exemption from minimum alternate tax under section 115JB of the Income Tax Act. External commercial borrowing by SEZ units up to US$ 500 million in a year without any maturity restriction through recognised banking channels. <ul><li>Exemption from Central Sales Tax. </li><li>Exemption from Service Tax. </li><li>Single window clearance for Central and State level approvals. </li><li>Exemption from State sales tax and other levies as extended by the respective State Governments. </li><li>Land requirements for approved Special Economic Zones</li></ul>The total land requirement for the 234 formal approvals granted till date is approximately 33,808 hectares out of which, about 60 approvals are for State Industrial Development Corporations / State Government Ventures, which account for over 17,800 hectares. In these cases, the land already available with the State Governments or SIDCs or with private companies has been utilised for setting up SEZ. The land involved for the 63 notified SEZs where operations have since commenced is 8.051.56 hectares only. <b>Benefits derived from SEZs</b> Investment of the order of Rs.100,000 crore including FDI of US$ 5 - 6 billion expected by the end of December 2007. 500,000 direct jobs expected by December 2007. The benefits derived from multiplier effect of the investments and additional economic activity in the SEZs and the employment generated thus will far outweigh the tax exemptions and the losses on account of land acquisition.
New Delhi 20-Jun-2007
<b>What is an SEZ?</b> A Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. Usually the goal is an increase in foreign investment. One of the earliest and the most famous SEZs were founded by the Government of the People's Republic of China under Deng Xiaoping in the early 1980s. Following the Chinese example, Special Economic Zones have been established in several countries, including Pakistan, India, Iran, Jordan, Poland, Kazakhstan, the Philippines, Russia, and Ukraine. According to World Bank estimates, as of 2007 there are more than 3,000 projects taking place in SEZs in 120 countries worldwide. <b>SEZs in India</b> Considering the need to enhance foreign investment and promote exports from the country and realising the need that a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally, the Government of India announced the Special Economic Zones policy in April 2000. The Policy deems the SEZ to be foreign territory for the purposes of trade operations, duties and tariffs, and provides for setting up of SEZs in the public, private, or joint sector as well as by the State Governments. Government has also converted into SEZs the Export Processing zones located at - <ul><li>Kandla and Surat (Gujarat) </li><li>Cochin (Kerala) </li><li>Santa Cruz (Mumbai–Maharashtra) </li><li>Falta (West Bengal) </li><li>Chennai (Tamil Nadu)</li><li>Visakhapatnam (Andhra Pradesh)</li> <li>Noida (Uttar Pradesh)</li><li>Nanguneri and Tirunelveli (Tamil Nadu) </li></ul>The word "special" mainly means special economic systems and policies. Central Government accords special policies and flexible measures to the SEZs, allowing them to utilise a special economic management system, such as:<ul><li>Special tax incentives </li><li>Greater independence on international trade activities. </li><li>Economic characteristics represented as "4 principles"</li><li>Construction primarily relies on attracting and utilising foreign capital. </li><li>Primary economic firms are sino-foreign joint ventures and partnerships as well as wholly foreign-owned enterprises.</li> <li>Products are primarily export-oriented </li><li>Economic activities are primarily driven by market</li> </ul> <b>SEZ Acts & Rules </b> The SEZ Policy of April 2000 became the precursor for the SEZ Act, 2005. Its main objectives are<ul><li>Generation of additional economic activity</li><li>Promotion of exports of goods and services</li><li>Promotion of investment from domestic and foreign sources</li><li>Creation of employment opportunities</li><li>Development of infrastructure facilities</li></ul>The Act envisages a key role for the State Governments in export promotion and creation of related infrastructure. A single-window SEZ approval mechanism has been provided through a 19-member inter-ministerial SEZ Board of Approval (BoA). It has been constituted by the Central Government in exercise of the powers conferred under the SEZ Act, 2005. The SEZ Rules provide for a minimum land requirement, which is different for the various classes of SEZs. Every SEZ is divided into a processing area where the SEZ units alone would come up, and the non-processing area where the supporting infrastructure is to be created. The SEZ Rules provide for:<ul><li>Simplified procedures for development, operation, and maintenance of the SEZs, and for setting up units & conducting business in SEZs</li><li>Single window clearance for setting up an SEZ</li><li>Single window clearance for setting up a unit in an SEZ</li><li>Single window clearance on matters relating to Central as well as State Governments</li><li>Simplified compliance procedures and documentation with an emphasis on self certification</li><li>Approval mechanism</li></ul>The developer submits the proposal for establishment of SEZ to the concerned State Government. The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the BoA. The applicant also has the option to submit the proposal directly to the Board. All the decisions are taken in the Board by consensus. <b>Administrative set-up </b> The functioning of the SEZs is governed by a three-tier administrative set-up. The BoA is the apex body and is headed by the Secretary, Department of Commerce. The Approval Committee at the Zonal level deals with the approval of units in the SEZs and other related issues. Each Zone is headed by a Development Commissioner, who is the ex-officio chairperson of the Approval Committee. Once an SEZ has been approved by the BoA and the Central Government has notified the area of the SEZ, units are allowed to be set up in the SEZ. All post-approval clearances, including grant of importer-exporter code number, change in the name of the company or implementing agency, broad banding diversification, etc., are given at the Zonal level by the Development Commissioner. The performance of the SEZ units are periodically monitored by the Approval Committee and units are liable for penal action under the provision of Foreign Trade (Development and Regulation) Act, in case of violation of the conditions of the approval. <b>Incentives and facilities </b> Duty free import/ domestic procurement of goods for development, operation and maintenance of SEZ units 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years. Exemption from minimum alternate tax under section 115JB of the Income Tax Act. External commercial borrowing by SEZ units up to US$ 500 million in a year without any maturity restriction through recognised banking channels. <ul><li>Exemption from Central Sales Tax. </li><li>Exemption from Service Tax. </li><li>Single window clearance for Central and State level approvals. </li><li>Exemption from State sales tax and other levies as extended by the respective State Governments. </li><li>Land requirements for approved Special Economic Zones</li></ul>The total land requirement for the 234 formal approvals granted till date is approximately 33,808 hectares out of which, about 60 approvals are for State Industrial Development Corporations / State Government Ventures, which account for over 17,800 hectares. In these cases, the land already available with the State Governments or SIDCs or with private companies has been utilised for setting up SEZ. The land involved for the 63 notified SEZs where operations have since commenced is 8.051.56 hectares only. <b>Benefits derived from SEZs</b> Investment of the order of Rs.100,000 crore including FDI of US$ 5 - 6 billion expected by the end of December 2007. 500,000 direct jobs expected by December 2007. The benefits derived from multiplier effect of the investments and additional economic activity in the SEZs and the employment generated thus will far outweigh the tax exemptions and the losses on account of land acquisition.