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
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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
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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
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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
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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
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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.
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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
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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
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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
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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
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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.
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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.
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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. 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)
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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
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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
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