SEMINARS ON GENERAL

TOPICS

SEZ AND ITS EFFECT ON THE

ECONOMY
WHAT ARE SEZ’S?
 a geographical region that has economic and other laws
 more free-market-oriented than a country's typical or
national laws.
 special economic regulations that are different from other
areas in the same country.
 these regulations tend to contain measures that are
conducive to foreign direct investment.
 Conducting business in a SEZ usually means that a
company will receive tax incentives and the opportunity to
pay lower tariffs.
 SEZs were established in many countries as testing
grounds for implementation of liberal market economy
principles.
 SEZs are viewed as instruments enhancing the
acceptability and credibility of transformation policies,
attracting domestic and foreign investment and also for
the opening upon the economy.
 SEZs in India seek to promote the value addition
component in exports, generate employment as well as
mobilize foreign exchange.
 It is very important to understand all aspects of SEZs
such as basic concepts, its various models and the life
cycle of its business before initiating any policy or
investments for these projects.
 Over 234 companies received formal approval, 162
companies received in-principle approval and 100
companies received notification to set up SEZs.
 The Indian government is expecting an investment to the
tune of Rs.53,561 crore (USD 13274 million) and an
additional job creation for 15,75,452 individuals in SEZs
by December 2010.
 Despite all the efforts, SEZ development has become the
most controversial issue for India today
 Despite the fact that the existing SEZ Act and FDI
Policies for SEZs are very lucrative; the rationale behind
the rapid economic and industrial growth of the Indian
SEZ policy is being questioned.
LAYOUT OF SEZ
 The layout of a SEZ in the Indian context consists of a
processing zone where commercial activity takes
place.
 The processing zone is made up of one or several SEZ
units, which could possibly be run by different
entrepreneurs.
 Apart from the processing zone a large area can be
allocated for the provision of housing, health,
education, recreation and other amenities.
THE MAIN OBJECTIVES OF THE SEZ
ACT ARE
 Generation of additional economic activity

 Promotion of exports of goods and services

 Promotion of investment from domestic and foreign sources

 Creation of employment opportunities

 Development of infrastructure facilities

FISCAL INCENTIVES
 Income Tax Holiday (Units In Sez)
 Income Tax Holiday (Developer)
 Capital Gain
 Dividend Distribution Tax
 Minimum Alternate Tax
 Customs Duties
 Service Tax
 Securities Transaction Tax
 Import Duty
 Excise Duty
 Central Sales Tax/VAT
TYPE OF SEZ
 Free trading & warehousing zones: special category SEZ
focus on trading and warehousing. Objective to create trade
related infrastructure to facilitate import and export and
import of goods and services with freedom to carry out trade
transactions in free currency.
 SEZ for multi-product of SEZ rules, 2006: where Units may
be set up for manufacture of two or more goods in a sector or
goods falling in two or more sectors or for trading and
warehousing or rendering of two or more services in a sector
or rendering of services falling in two or more Sector.
 SEZ for sector specific of SEZ rules, 2006: meant
exclusively for one or more products in a
sector or one or more services in a sector.

 SEZ in a port or airport of SEZ rules,2006:

Special Economic Zone in an existing port or
airport for Special Economic Zone
 POSITIVE IMPACT OF SEZS
 CHANGING THE CURRENT OCCUPATION PATTERN
 NEW EMPLOYMENT OPPORTUNITIES LOCAL
RECRUITMENT
 SELF-EMPLOYMENT WITH THE COMPENSATION MONEY
 BETTER INFRASTRUCTURE AND LIVING CONDITIONS
 CONTRACT OPPORTUNITIES FOR LOCAL POPULATION
NEGATIVE IMPACT OF SEZ’S
 FINANCIAL LOSSES TO GOVERNMENT

 LAND GRABBING

 ENVIRONMENTAL IMPACT

 CLUSTERS OF DEVELOPMENT

 EMPLOYEE WORKING CONDITIONS

 SEZ rules provide for:
 “Simplified procedures for development, operation,
 

and maintenance of the Special Economic Zones and

for setting up units and conducting business in SEZs;
 Single window clearance for setting up of an SEZ;
 Single window clearance for setting up a unit in a
Special Economic Zone;
 Single Window clearance on matters relating to
Central as well as State Governments;
 Simplified compliance procedures and
documentation with an emphasis on self certification
 INCENTIVES AND FACILITIES OFFERED TO
THE SEZS

 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 recognized banking channels.
 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.  
FACILITIES AVAILABLE TO SEZ
DEVELOPERS INCLUDE:-
 Exemption from customs/excise duties for development
of SEZs for authorized operations approved by the BOA.
 Income Tax exemption on income derived from the
business of development of the SEZ in a block of 10
years in 15 years under Section 80-IAB of the Income
Tax Act.
 Exemption from minimum alternate tax under Section
115 JB of the Income Tax Act.
 Exemption from dividend distribution tax under Section
115O of the Income Tax Act.
 Exemption from Central Sales Tax (CST).
 Exemption from Service Tax (Section 7, 26 and Second
Schedule of the SEZ Act).
ADMINISTRATIVE SET UP
 The functioning of the SEZs is governed by a three
tier administrative set up.
 The Board of Approval is the apex body and is
headed by the Secretary, Department of
Commerce.
 The Approval Committee at the Zone level deals
with approval of units in the SEZs and other related
issues.
 Each Zone is headed by a Development
Commissioner, who is ex-officio chairperson of the
Approval Committee.
 Once an SEZ has been approved by the Board of
Approval and Central Government has notified
the area of the SEZ, units are allowed to be set
up in the SEZ.
 All the proposals for setting up of units in the
SEZ are approved at the Zone level by the
Approval Committee consisting of Development
Commissioner, Customs Authorities and
representatives of State Government.
IMPORTANT SEZS IN INDIA
 Belgaum Aerospace SEZ Operational SEZ in Karnataka
 Chennai One in Thoraipakkam, Chennai
 ETA Technopark in Navalur, Chennai
 Falta in West Bengal
 Kensington in Powai, Mumbai
 Mahindra World City in Chennai and Jaipur
 MARG Swarnabhoomi in Tamil Nadu
 MIHAN in Pune  
 SEEPZ in Mumbai  
 Greater NOIDA in Uttar Pradesh
 Pharma and Biotech SEZ in Aurangabad, Maharashtra
CONCLUSION
 If India wishes to continue on the growth trajectory of the
past decade and a half for the next four or five decades,
then such policies are inevitable. SEZs are one important
means of facilitating these policies.

 According to estimates provided by the Ministry of

Commerce, 4 million jobs will be created through SEZs by
December 2010. This underlines their usefulness as channels
of employment creation SEZ is a mean to achieve growth and
employment which industries are eager to utilize effectively.

 But government should f formulate the rehabilitation and

resettlement programme keeping in mind that any sort of
political and social unrest due to land acquisition runs
counters the very interest of industrialization.
 Government has considered SEZ a dream project to
boost export, investment and employment in the
coming years.
 No doubt the pace of growth of SEZ export is very
slow. The reason of this slow progression in the
persistence of SEZ in its nascent stage along with
lack of infrastructure, availability of incentive and
sort fall of capital goods as compared to other
countries having high export from SEZs like China.
 India has the right mix of factors, such as
availability of large and skilled workforce, intrinsic
comparative advantage in several industries, a
strong policy framework and already buoyant export
sector and wide domestic market.
 SEZ can be seen as a tool to combine all.