Special Economic Zone

(SEZ)
 Special Economic Zone

 SEZs, the new engines for export led economic growth in India, are
defined as:

“Specifically delineated duty-free enclave

and
shall be deemed to be foreign territory
for the purposes of
trade operations and duties and tariffs”
 Background

 Extremely successful Chinese format to promote exports, attract FDI

and foster overall economic growth

 Shenzhen SEZ in China, started in 1981, has achieved 38% GDP growth
CAGR (highest recorded so far) mainly due to:

– Liberal economic framework

– Integrated infrastructure at very competitive prices

 Special Economic Zone : Shenzhen
 Shenzhen SEZ is the result of vibrant
economy made possible by rapid FDI since
late 1970s, when it was a small village.

Shenzhen
 Since then, foreign nationals have invested
more than USD 30 Billion for building
factories and forming JVs.

 It is now one of the fastest growing cities in

the world with home to numerous high-tech
companies & also the 2nd busiest in
mainland china.
 SEZ

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Integrated Infrastructure
Self-contained &
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India provides the boldest policy framework

 SEZ Scheme
 Incorporated in Exim policy on April 1, 2000

 to provide an internationally competitive & hassle free environment for

exports

 Quality Infrastructure & Attractive fiscal package to attract investors

 Units in the Zone have to be a net foreign exchange earner in 3 years

 Units may be set up in SEZ for manufacturing of goods and/or

rendering of Services.
 SEZ Scheme contd..
 offshore banking unit may be set up in the SEZs.

 All import / export operation of SEZ units to be on self-certification

basis.

 Sales in the Domestic Tariff Area (DTA) by SEZ units shall be subject
to payment of full custom duty and import policy in force

 Existing Export Promotion Zones (EPZs) were converted into SEZs viz.
8 EPZs located at Kandla & Surat (Gujarat), Cochin (Kerala), Santa
Cruz ( Mumbai-Maharashtra), Falta ( WB), Madras( TN), Noida (UP)
and Vishakhapatnam (AP)
 SEZ ACT 2005
 To instill confidence in investors and signal the Government's
commitment to a stable SEZ policy regime

 to impart stability to the SEZ regime

 to generating greater economic activity and employment

 an act to provide for establishment, development & management of the

SEZs

 It extends to whole of India

 for promotion of exports and for matters connected therewith or

incidental thereto
 SEZ ACT 2005 (contd…)
 provides for setting of SEZ's in the public, private joint sector or by
State Governments. Even foreign companies can set up SEZ

 SEZ could be set up

– for manufacture of goods; or

– for rendering services; or

– for both manufacturing of goods and for rendering services; or

– as a Free Trade and Warehousing Zone

 Important Definitions

 Board of Approval

 Authority

 Unit Approval Committee

 Development Commissioner

 Authorized Operations

 Domestic Tariff Area

 Important Definitions ( contd…)

 Export:

(i) taking goods, or providing services, out of India, from an SEZ, by

land, sea or air or by any other mode, whether physical or
otherwise; or

(ii) supplying goods, or providing services, from the DTA to a Unit or

Developer; or

(i) supplying goods, or providing services, from one Unit to another

Unit or Developer, in the same or different Special Economic Zone
 Important Definitions ( contd…)

 Import:

(i) bringing goods or receiving services, in a SEZ, by a Unit or Developer

from a place outside India by land, sea or air or by any other mode,
whether physical or otherwise; or

(ii) receiving goods, or services by, Unit or Developer from another Unit or
Developer of the same SEZ or a different SEZ
 SEZ Framework
 Performance of the units to be monitored by a Committee headed by
Development Commissioner and consisting of Customs

 Simplified compliance procedures and documentation with an emphasis on

self certification

 Flexibility to keep 100% of export proceeds in EEFC account

 Full freedom for subcontracting including subcontracting abroad

 Commodity hedging permitted

 SEZ Framework
 Exemption from interest rate surcharge on import finance

 SEZ unit to be positive net foreign net exchange earner within three years

 Job work on behalf of domestic exporters for direct exports allowed

 Contract farming allowed agriculture/ horticulture units

 No License required for import

 SEZ Framework

 No routine examination by Customs of export & import cargo

 No separate documentation required for Customs and Exim Policy

 In house customs Clearance

 Exemption from industrial licensing requirement for items reserved for

SSI sectors

 Supplies from DTA to SEZ units treated as deemed exports

 Support service like banking, post office, clearing agents etc. provided

in Zone Complex

 Developed plots and ready to use built up space

 SEZ Framework
 Investment made by individuals etc in a SEZ company also eligible for
exemption u/s 88 of IT Act

 Developer permitted to transfer infrastructure facility for operation and

maintenance

 Flexibility to the developer to set up infrastructural facilities and to collect

service /user charges. The developers will also have the freedom to allocate
developed plots to approved SEZ units on a purely commercial basis

 Generation, transmission and distribution of power in SEZs allowed

 Entry of persons to processing area of the SEZ shall be regulated by the

Development Commissioner through issue of identity cards
 SEZ Framework

Foreign Direct Investment

 100% foreign direct investment (FDI) is freely allowed in

manufacturing sector in SEZ units under automatic route, except
prohibited items

 No cap on foreign investments for SSI reserved items

 100% FDI allowed for : townships and recreational facilities on a case

to case basis, franchise for basic telephone service in SEZ
 SEZ Framework

Environment

 SEZs permitted to have non-pollution industries in IT, and recreational

facilities like golf courses, desalination plans, hotels and non-pollution
service industries in the Coastal Regulation Zone (CRZ) area

 Exemption from public hearing under Environment Impact Assessment

(EIA) Notification
 SEZ Framework

Off-Shore Banking (OBUs)

 Setting up of Off-Shore Banking Units allowed in SEZs

 OBUs entitled for 100% Income-Tax exemption for 3 years & 50% for
next 2 years
 SEZ Framework

Companies Act

 Enhanced limit of Rs. 2.4 cr per annum allowed for managerial

remuneration

 Regional office of Registrar of Companies (RoC) in SEZs

 Exemption from requirement of domicile in India for 12 months prior

to appointment as Director
 Incentives & facilities offered to
SEZs Units & Developers
 Duty free import/domestic procurement of goods for development,
operation and maintenance of SEZ units

 100% IT exemption on export income for first 5 years, 50% for

next 5 years thereafter and 50% of ploughed back export profit for
next 5 yrs.

 Exemption from minimum alternate tax (MAT) under IT Act.

 External commercial borrowing by SEZ units upto US $ 500 million

in a year without any maturity restriction through recognized
banking channels.
 Incentives & facilities offered to
SEZs Units & Developers

 Exemption from Central Sales Tax.

 Exemption from Service Tax.

 Single window clearance for Central and State level approvals.

 Exemption from State sales tax and other levies as extended by the
respective State Governments.

 Duty free goods to be utilised in 5 years.

 Incentives & facilities offered to
SEZs Units & Developers
 Exemption from Securities Transaction Act.

 Exemption from Stamp Duty and Registration Fee

 Exemption from Electricity Duty for 10 years from the date of

production or rendering services

 Losses will be allowed to be carried forward.

 "Write off "of unrealized export bills up to 5%

 Sectorwise SEZ as on Dec 2008
Sectors Formal approvals In-principle approvals Notified SEZs
Aviation/Aerospace 1 2 -
IT/ITES/Electronic 341 11 181
Hardware/Semiconductor
Textiles/Apparel/Wool 20 13 10
Pharma/chemicals 22 2214

Petrochemicals & petro 4 0 1

Multi-Product 23 53 12
Building product/material 1 2 -
Beach & mineral/metals 3 0 1
Bio-tech 26 1 9
Ceramic & glasses 1 - -
Engineeringe 23 10 14
Multi-Services/Services 16 11 5
Metallurgical Engineering 1 - -
Electronic prod/ind 3 4 3
Auto and related 3 5 1
Energy related - - -
Footwear/Leather 7 2 4
 Sectorwise SEZ as on Dec 2008

Sectors Formal approvals In-principle approvals Notified SEZs

Gems and Jewellery 10 4 3
Power/alternate energy 4 1 2
FTWZ 7 8 1
Metal/Stain. 8 4 3
Steel/Alum/Foundary
Food Processing 4 2 3
Non-Conventional Energy 4 1
Plasting processing 1
Handicrafts 4 1 1
Agro 5 3 2
Port-based multi-product 7 - 2
Airport based multiproduct 2 1 -
Writing & printing paper mills 2 - 1

Grand Total 552 141 274

 Exports from functioning SEZs

Year Value (Rs. Crore) Growth Rate

( over previous year )

2003-2004 13,854 39%

2004-2005 18,314 32%

2005-2006 22 840 25%

2006-2007 34,615 52%

2007-2008 66,638 92%

Current investment and Employment

Investment: Rs. 83450 crore

Employment: 1,13,426 persons

 PROCEDURE FOR ESTABLISHMENT OF SEZ
 Any person who intends to set up an SEZ, after identifying the area, will
make a proposal to the state Govt. A high level authority under the
chairmanship of Chief Secretary is constituted for the purpose.

 State Govt with its recommendations, within 45 days, shall forward it to

Board of Approval which is a 19 member inter ministerial body in the
Ministry of Commerce & Industry.

 While forwarding a proposal, the State Government shall commit to

provide the following :

– That area in the proposed SEZ is free from environmental restrictions;

– That water, electricity and other services would be provided as required;

– That units would be given full exemption in electricity duty and tax on sale of
electricity for self generated and purchased power;

– To allow generation, transmission and distribution of power within SEZ;

 PROCEDURE FOR ESTABLISHMENT OF SEZ contd…

– To exempt from State ST, octroi, mandi tax, turnover tax and any other duty/cess
or levies on supply of goods from DTA to SEZ units;

– That for units inside the Zone, the powers under the Industrial Disputes Act and
other related labour Acts would be delegated to the Development Commissioner
and that the units will be declared as a Public Utility Service under Industrial
Disputes Act.

– That single point clearances system and minimum inspections requirement under
State Laws/Rules would be provided

 Where the Board receives & approves a proposal directly, the person shall
obtain concurrence of State Government within 6 months of the approval

 Board of Approval will verify the proposal with “authorized operation” allowed
for that sector & will forward its decision to Central Govt. for issuing approval.

 After approval, SEZ will be notified when developer submits land possession
documents or land on lease for minimum 20 years and a certificate from
State Govt. that land is free from all encumbrances
 Requirements of minimum area of land
Type of SEZ Min. Area Area Reserved for In North East
Required Processing Zone States, HP, J&K,
(ha) Uttaranchal,
Sikkim, Goa, UT
Multi Product 1000 25% 200
Services 100
Specific sector, SEZ in a 100 50% 50
port or Airport
Hardware, software, IT 10 Min built up area
1 Lac sq. m
Biotechnology, Gems & 10
Jewellary, Non
conventional energy
resources
Free trade & Warehousing 40 Min built up area 1
lac sq. m
 Approval of New Units
1) Application seeking permission for setting up a Unit and other
clearances, including those indicated below, shall be made to the
Development Commissioner, in Form F, in 5 copies, with a copy to the
Developer:-

– (a) Setting up of unit in a Special Economic Zone;

– (b) Annual permission for sub-contracting;
– (c) Allotment of Importer-Exporter Code number;
– (d) Allotment of land/industrial sheds in the Special Economic Zone;
– (e) Water connection;
– (f) Registration-cum-Membership Certificate;
– (g) Small Scale Industries Registration;
– (h) Registration with Central Pollution Control Board;
– (i) Power connection;
– (j) Building approval plan;
– (k) Sales tax registration;
– (l) Approval from inspectorate of factories;
– (m) Pollution control clearance, wherever required;
– (n) Any other approval as may be required from the State Government.
 Approval of New Units (contd…)
(2) The Development Commissioner shall get the proposal scrutinized
and get it placed before the Approval Committee for its
consideration. On receiving recommendation of the approval committee,
the approval shall be granted, modified or rejected within 15 days.

(3) The proposals received for FDI / industries needing license under
Industries Act shall be placed before the Board by the
Development Commissioner for its consideration. Approval shall be
granted, modified or rejected within 45 days.

Note:
• Land will be allotted by developer only after approval to the unit is given.
• Entrepreneur has to submit proof of his residence & IT returns for last 3 years
along with application.
 Approval of New Units (contd…)

Sector specific requirements to be fulfilled by units:

(a)export of high-grade iron ore, that is 64 % Fe and above, except

iron ore of Goa origin and Redi origin, which would be subject to
approval of Board

(b)no sub-contracting or job work of polyester yarn shall be

permitted in DTA or in an EOU or Units in other Special Economic
Zone
 Sensitive Sectors
No proposal shall be considered for :

(a) recycling of plastic scrap or waste(*)

(b) enhancement of the approved import quantum of plastic waste and scrap

(c) reprocessing of garments or used clothing or secondary textiles materials

and other recyclable textile materials into clipping or rags or industrial
wipers or shoddy wool or yarn or blankets or shawls (*)

(*): Provided that extension of Letter of Approval for an existing Unit shall be decided by
the Board
 Authority for each SEZ

Authority shall be responsible for development, operation & management

of the SEZ for which it is constituted and will perform following functions:

(a) the development of infrastructure in the SEZ

(b) promoting exports from the SEZ

(c) reviewing the functioning and performance of the SEZ

(d) levy user or service charges or fees or rent for the use of properties
belonging to the Authority

(e) Will get loans and fund from Central Government for performing its
functions.
 Applicability of Domestic Laws

Though several laws have been relaxed for the SEZs to promote exports,
the area would still have to adhere to the following laws.

 Local labour laws

 Local building bye laws if not specially laid out for SEZ

 Pollution Laws

 Factory Act
SUMMING UP