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Special Economic Zone

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Special Economic Zone

  1. 1. GLOBAL TAX ADVISORY SERVICES Special Economic Zones (SEZ) The Next Frontier for India Presentation by: Yogendra Garg Director SEZ, Department of Commerce Government of India, New Delhi 1
  2. 2. INDIA -Demographics “India needs to generate 200 million additional jobs over the next 20 years”. - Planning Commission 500 mn people < 25 years 333 mn in rural areas 673 mn Working age population in 2005 (15-64 yrs as % of total population) 872 mn Working age population in 2020 71 mn People entering workforce by 2010 48 mn People entering workforce in rural areas 2
  3. 3. Why SEZs The drivers of Economic Growth are: Investment & Capital Formation Improved Export Competitiveness Need for: World-class infrastructure Hassle free taxation laws and procedures Competitive fiscal package Limitations in achieving this all over the country Special Economic Zones (SEZs) as vehicle to create environment for investments and exports 3
  4. 4. Objectives of Indian SEZ Act, 2005 Generation of additional economic activity Development of infrastructure facilities; Promotion of investment from domestic and foreign sources Creation of employment opportunities Promotion of exports of goods and services 4
  5. 5. Legislative & Regulatory Framework 5
  6. 6. Legislative framework SEZ Act 2005 SEZ Rules 2006 Basic framework for construction, Rules & regulations defining development, operation & guidelines & procedures for maintenance of SEZs prescribed effective operation of the SEZ Act under the Act & prescribes the tax 2005 and other fiscal incentives available State SEZ Policy Prescribes guidelines & various policies for giving effect to SEZ Act 2005 & provides for substantive & procedural benefits offered by the State to SEZ developers & units 6
  7. 7. SEZ Act & Rules-Main Features • Simplification of procedures • Single window clearance for setting up SEZ; • Single Window clearance on matters relating to Central as well as State Governments for setting up units in a SEZ; • Simplified compliance procedures and documentation with an emphasis on self certification; • One Stop Shop; • Tax concessions for both Developers & Units. 7
  8. 8. SEZ Formats Type of SEZs Minimum Area Requirement Minimum (in hectares) Processing Area (presently permitted) Multi Product 1,000 hectares to 5000 hectares (maximum) 50% (To promote widespread development, in certain states and union territories the minimum area requirement has been reduced to 200 hectares) Multi Services/ 100 50% Sector Specific (To promote widespread development, in certain states and union territories the minimum area requirement has been reduced to 50 hectares) IT/ ITES, Gems & 10 with minimum built up area of: 50% Jewellery, Bio-Tech - 100,000 sq meters for IT and Non- - 50,000 sq meters for Gems & Jewellery Conventional Energy - 40,000 sq meters for Bio-Tech and Non- Conventional Energy Free Trade 40 with minimum built up area of 100,000 sq 50% Warehousing Zone meters 8
  9. 9. SEZ SEZ - Developer/ Co-developer Support infrastructure including roads, sewerage, Restricted entry/ exit ports, airports, road & rail network, power & water supply, residential & business complex, hotels, Entry educational institutions, Non-processing Area** hospitals, recreational Exit facilities, etc – developer/ co-developer Manufacturing & service export units approved by regulatory authorities Entry Exit Processing Area* * Processing area is the demarcated area in SEZ where units can be located for manufacture of goods or rendering of services ** Non-processing area is intended to provide support facilities to SEZ processing area and may include commercial and social infrastructure 9
  10. 10. Key stakeholders • Person granted approval to develop, operate and Developer Developer maintain SEZ including infrastructure facilities • Person granted approval to develop SEZ in Co-developer Co-developer conjunction with developer for setting up facilities in the non-processing area • Appointed by developer/ co-developer to undertake Contractor authorized operations in SEZ Contractor • Eligible to exemptions, drawbacks and concessions available to developer/ co-developer Person undertaking export activities and approved for • Manufacture or production Unit Unit • Processing • Trading and Warehousing • Services 10
  11. 11. Regulatory Framework – An overview Processing area - permitted development ….. Specific conditions Specific conditions Land in SEZ cannot be sold Development Commissioner to demarcate processing area – subsequent to which proposals for setting up of units will be entertained Only units with valid Letter of Approval from Development Commissioner can set up operations Land may be allotted for development of infrastructure facilities for use by Units - specific approval may be obtained for lease of land for creation of facilities such as canteen, PCOs, first aid centres, creche, etc for exclusive use of unit Only authorised persons with identity cards permitted to enter processing area 11
  12. 12. Regulatory Framework – An overview Non-processing area - permitted development… Development activities in the non-processing area are to support the SEZ General conditions General conditions For development of business and social purposes such as educational institutions, hospitals, hotels, recreation and entertainment facilities, residential and business complexes and other infrastructure needed for development, operation and maintenance of SEZ No Vacant land in non-processing area shall be leased for business and social purposes such as educational institutions, hospitals, hotels, recreation and entertainment facilities, residential and business complexes to any person except a co-developer approved by the Board Exemption available only with respect to set up/ development of such facilities as approved by the Board of Approvals. 12
  13. 13. Tax Framework 13
  14. 14. Direct Tax Incentives… for SEZ Developers & Units • SEZ developers given IT exemption for 10 consecutive assessment year out of first 15 years of its operations. Exemption from Corporate Tax to SEZ units for 15 years (5 + 5 + 5). •100% for first 5 years; •50% for next 5 years; and •50% for next 5 years to the extent of profits ploughed back • Corporate Tax exemption extended to export of services also. • Exemption from MAT to SEZ Developers and SEZ Units • SEZ Developers exempted from Dividend Distribution Tax. 14
  15. 15. Indirect Tax Incentives Customs duty exemption for goods imported into or services provided in SEZs or to Unit Customs duty exemption on goods exported from or services provided from SEZs or Unit to any place outside India Exemption from Central excise duty on goods brought from DTA to SEZs or Unit Exemption from service tax on taxable services provided to SEZ developer or Unit for their authorised operations. However such exemption on exports made by unit need to meet criteria of “Export of Service Rules” Central sales tax exemption on sale/purchase of goods for authorised operations other than newspapers where such sale takes place in the course of interstate trade or commerce Tax exemption on electricity and power consumption 15
  16. 16. SEZ – Current Status 362 SEZs formally approved: 17 Multi Product SEZs; 6 Port based Multi Product SEZs; 114 Sector Specific SEZs; 225 EH/IT/ITES SEZs 177 valid in-principle approvals; 132 SEZs notified; 45 SEZs functional 06-07 Exports at Rs. 34787 Crores Growth in exports 52% over 2005-06 Projected exports – 2007-08 – Rs. 67088 crores (200% increase in two years) 16
  17. 17. SEZ – Success Stories MOTOROLA NOKIA FOXCONN APACHE LOTUS FOOTWEAR BRANDIX APPAREL SUZLON FLEXTRONICS 17
  18. 18. SEZ – Issues Land Acquisition Cap on number of SEZs Cap on maximum size of SEZ Quantum of Processing Area Regulation of Land use in the SEZs Protection of Worker’s Rights Review of Tax Concessions 18
  19. 19. SEZ ground realities Total Land Area 2973190 sq km Agricultural area 54.5% 1620388 sq km Non Agricultural area 1352802 sq km SEZs formally approved (362) 487 sq km In-principal approvals (177) 1571 sq km [Area for SEZs so far notified amounts to only 177 sq km] Total Area proposed for SEZ 2058 sq km As % of total land area 0.069% As % of Agri land 0.13% Chinese SEZs Xiamen : 131 sq. km Shenzen : 327 sq. km Hainan : 34000 sq. km 19
  20. 20. SEZs in SEZs India spread New Delhi THANK YOU 20
  21. 21. Thank you 21

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