Specialties of Special Economic Zones (SEZ)

Did you know the first SEZ (earlier known as EPZ) of Asia was set up in 1965 in Kandla, Gujarat with a view to promote exports? Later EPZ got modified to become Special Economic Zone , in the year 2005, with a view not to just promote exports but also other economic activities.

• To serve as growth engines to increase manufacturing in India and exports from India: Special Economic Zone provides incentives to both foreign as well as Indian companies by supporting easy compliance in labour laws, decrease in red tapes for industries, free import of raw materials for manufacturing and export and zero excise tax.
• To attract the foreign companies to invest in our country.
• To develop infrastructure: As industrialisation would increase, the income of the population would increase leading to the development of better roads, better housing facilities, modes of transport etc.
• To foster employment: given the industries would increase, the employment shall increase.
• Special Economic Zone also promote export of services which was not in the case of EPZ.
• In a way, Special Economic Zone are being established to promote both manufacturing and service sectors in India.

• It is a deemed foreign area.
• Special Economic Zone can be established by both government as well as private entities.
• No duties on import*.
• No customs or tariffs on export*.
• There are special types of Special Economic Zone as well: Reverse SEZ and Finance SEZ
• Special Economic Zone is also available for opening of Off-shore Banking Units (OBU).

1. Special Economic Zone units may export goods and services including agro products, partly processed goods, sub-assemblies and components except prohibited items of exports in ITC (HS). The units may also export by-products, rejects, waste scrap arising out of the production process. Export of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) shall be subject to fulfillment of the conditions indicated in the ITC (HS) Classification of Export and Import Items.
   Special Economic Zone units, other than trading/service unit, may also export to Russian Federation in Indian Rupees against repayment of State Credit/Escrow Rupee Account of the buyer, subject to RBI clearance, if any.
2. SEZ unit may import/procure from the DTA without payment of duty all types of goods and services, including capital goods, whether new or second hand, required by it for its activities or in connection therewith, provided they are not prohibited items of imports in the ITC(HS). However, any permission required for import under any other law shall be applicable. Goods shall include raw material for making capital goods for use within the unit. The units shall also be permitted to import goods required for the approved activity, including capital goods, free of cost or on loan from clients.
3. SEZ units may procure goods required by it without payment of duty, from bonded warehouses in the DTA set up under the Policy and/or under Section 65 of the Customs Act and from International Exhibitions held in India.
4. SEZ units, may import/procure from DTA, without payment of duty, all types of goods for creating a central facility for use by units in SEZ. The Central facility for software development can also be accessed by units in the DTA for export of software.
5. Gem & Jewellery units may also source gold/ silver/ platinum through the nominated agencies.
6. SEZ units may import/procure goods and services from DTA without payment of duty for setting up, operation and maintenance of units in the Zone.

From above statistics we can see that from 2006 to 2016, nearly in a decade, number of SEZ increased from 19 to 205, resulting in Investment from 4000 Cr. INR to 4 Lakhs Cr., employment increased from 1.3 lakhs to 15 lakhs, ultimately totaling exports from 5 billion USD to 85 billion USD.

So, there has been an increase of 9900% in investment and 1600% increase in exports through SEZ in just 10 years. As mentioned above, SEZ can be set up by government private or foreign entities.

1. Payment of Customs duty for goods or services imported into SEZ for its operations and goods exported or services provided from SEZ outside India.
2. Payment of Excise duty for goods brought from Domestic Tariff Area to SEZ for its authorized operations.
3. Provided the SEZ is operationalized by 31.03.2017, developers are exempted from payment from Income Tax under the Income Tax Act as per rules in force, as follow:

   Income Tax exemption for a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act. Block of 10 years will be selected at the discretion of the developer

4. Payment of Central Sales Tax for its authorized operations.
5. Payment of Service Tax under Chapter V of the Finance Act 1994 on taxable services consumed for its authorized operation.

1. Payment of customs duty for goods or services imported into SEZ for its operations and goods exported or services provided from SEZ outside India.
2. Payment of Excise duty for goods brought from Domestic Tariff Area to SEZ for its authorized operations provided that the unit commences commercial operations by 31.03.2020,
3. SEZ Units are exempted from payment from Income Tax and other taxes under the Income Tax Act as per rules in force, as follows

   100% Income Tax exemption 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. Income tax benefit as mentioned above is available on the profits out of exports made out of India.

• Provided further that at least fifty per cent of the area shall be earmarked  for developing the processing area
• Provided also that the Central Government may consider on merit the clubbing of contiguous existing notified Special Economic Zones notwithstanding that the total area of resultant Special Economic Zones exceeds 5000 hectares.
• A Special Economic Zone for a specific sector or [for one or more services] or in a port or airport, shall have a contiguous area of fifty hectares or more.