Special Economic Zone - objectives , challenges and benefits ( mindmap)
A SEZ is an area in which the economic regulation are different from the rest of country .
·
SEZ are special duty-free area & deemed to be foreign territory for
purpose of trade operations , duties & tarrifs.
·
These areas have developed infrastructure , liberal economic policy & concession tax rates for the firms .
·
Traditionally the biggest deterrents to foreign investment in India have been
high tariffs & taxes , red tape & strict laws . the SEZ regulations
tend to be conducive to foreign direct investment .
·
SEZ policy was introduced to india in 2000. Prior to SEZ, india relied on export processing
zones (EPZ) which failed to make an impact on foreign investors.
·
To instill confidence in investors & signal the govt’s commitment to
a stable SEZ policy regime the special economic zones act, 2005. Was passed
by parliament in may 2005 .
·
SEZ can be applied by :
o Pulic/state government or its agencies
o Private/joint sector
o Foreign agency
An SEZ is an enclave within a country that is
typically duty-free and has different business and commercial laws chiefly to
encourage investment and create employment.
Need
for it ?
An SEZ Policy was announced for the very first time in 2000 in
order to overcome the obstacles businesses faced.
- There
were multiple controls and many clearances to be obtained before starting
a venture.
- Infrastructure
facilities were shoddy and well below world standards in India.
- The
fiscal regime was unstable as well.
- Note:- A precursor to the SEZs,
the Export Processing Zones were set up in India well before. The first
EPZ came up in Kandla in 1965 to promote exports. This was the first EPZ
not only in India but in all of Asia as well.
Special
Economic Zones Act, 2005
·
“It is defined as an Act to provide for the establishment,
development and management of the Special Economic Zones for the promotion of
exports and for matters connected therewith
The chief objectives of the SEZ Act are:
- create
additional economic activity.
- boost the export of goods and services.
- generate employment.
- boost domestic and foreign investments.
- develop infrastructure facilities.
SEZs
Facilities & Incentives
The government offers many incentives for companies and
businesses established in SEZs. some of the important ones are:
- Duty-free
import or domestic procurement of goods for developing, operating and
maintaining SEZ units.
- 100%
Income tax exemption on export income for SEZ units under 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. (Sunset Clause for Units
will become effective from 2020).
- Units
are exempted from Minimum Alternate Tax (MAT).
- They
were exempted from Central Sales Tax, Service Tax and State sales tax.
These have now subsumed into GST and supplies to SEZs are zero-rated under
the IGST Act, 2017.
- Single
window clearance for Central and State level approvals.
- There
is no need for a license for import.
- In
the manufacturing sector, barring a few segments, 100% FDI is allowed.
- Profits
earned are permitted to be repatriated freely with no need for any
dividend balancing.
- There
is no need for separate documentation for customs and export-import
policy.
- assured infrastructure to all
firms
Apart from the firms operating in SEZs, developers of SEZs also
receive many benefits and incentives from the government.
SEZ in india
Currently,
about 240 are operational in the country. About 64% of the SEZs are located in
five states – Tamil Nadu, Telangana, Karnataka, Andhra Pradesh and Maharashtra.
Baba
kalyani committee
·
the baba
kalyani led committee constituted by the ministry of commerce & industry
to study the existing SEZ policy of india.
·
Recommendations
of the Baba kalyani committee :
o Shift focus from
export to economic & employment growth . for this , incentives to be based
on specific parameters including demand . employment etc.
o Connectivity to remote SEZs through development of last mile connectivity.
o Focused diversification such as engineering & design , biotech
& healthcare services.
o Ease of doing business by simpler entry & exit processes using
time-bound online approval .
Challenges
of SEZ
- Introduction of MAT
(minim. alternative tax ) => firms started leaving, as well as
imposition of income tax on new sez.
- Domestic sales of SEZs face
disadvantage as " they will have to pay full custom duty' - It is
suggested that the “best FTA rates” should be allowed for domestic sales,
too
- lack of support from state govt
when it comes to developing effective single-window system for clearance.
- Infrastructure around SEZ is
poor
- Land use policy within SEZ is
inflexible
- Existence of multiple models
of economic zones such as SEZ ,
coastal economic zone , delhi-mumbai industrial corridor , national
investment and manufacturing zone , food park and textile park .
- requirement of payment in
foreign exchange for services provided by SEZs units to DTA areas (
domestic tariff area )- to tackle - it has been suggested to amend in
defin of service in SEZ act of 2005.
- under-utilisation of existing
capacity in sez units.
- conversion of agri-land into
sez – leading to issue of food security.
- Water security is also affected
, since water is diverted for sez
- Pollution – industrial effluents
– drained out into water bodies – ex. Mangroves destruction of Gujarat affecting
fisheries and diary sectors .
Steps taken by govt.
- All existing notified SEZs deemed to be mutli-sector SEZs , enabling coexistence of a SEZ unit from any sector along with any other SEZ unit .
- Minimum land area required for setting up a multi-product SEZ has been revised from 500 hectares to 50 hectares.
- Implementation of some of Baba kalyani committee recommendations.
- Criteria on who can set up their units in SEZ was broadened to include “trust” or “any entity notified by central government” .
Great content and easy to understand.
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