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:

1. create additional economic activity.
2.  boost the export of goods and services.
3.  generate employment.
4.  boost domestic and foreign investments.
5.  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” .

mimindmap

reference: nationalaffair.com