A policy for setting up of Special Economic Zones (SEZs) in the country with a view to provide an internationally competitive and hassle free environment for exports was introduced on April 1, 2000. Units may be set up in SEZ for manufacturing of goods and/or rendering of Services. All the import/export operations of the SEZ units will be on self-certification basis. The units in the Zone have to be a net foreign exchange earner but they shall not be subject to any predetermined value addition or minimum export performance requirements. Sales in the Domestic Tariff area by SEZ units shall be subject to payment of full custom duty and import policy in force. Further offshore banking unit may be set up in the SEZs.
Special Economic Zone Act has been introduced in the year 2005. It is an act to provide for the establishment, development and management of the Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto.
The policy provides for setting of SEZ's in the public, private joint sector or by State Govts. It was also envisaged that some of the existing Export Processing Zones would be converted into SEZs. Accordingly, Government has converted the Export Processing Zones located at Kandla and Surat (Gujrat), Cochin (Kerala), Santa Cruz ( Mumbai-Maharashtra), Falta ( West Bengal) , Madras( Tamil Nadu), Vishakhapatnam (Andhra Pradesh) and Noida (Uttar Pradesh) into a Special Economic Zones.
In addition, approval has been given for setting up of 42 SEZs in various parts of the country in private/joint sectors or by the State Govt. Besides these, 3 new additional SEZs approved for establishment at Indore (Madhya Pradesh) , Manikanchan - Salt Lake (Kolkata) and Jaipur have since commended operations.
INDIAN SEZ - Salient Features and Facilities
- A designated duty free enclave and to be treated as foreign territory for trade operations and duties and tariffs.
- No License required for import.
- Exemption from custom duty on import of capital goods, raw materials, consumable spares etc.
- Exemption from Central Excise duty on procurement of Capital goods, raw materials, consumables spares etc. from the domestic market.
- Supplies from DTA to SEZ units treated as deemed exports.
- Reimbursement of Central Sales Tax paid on Domestic purchases.
- 100% income tax exemption for a block period of 5 years, 50% tax exemption for next five years u/s 10AA of the Income Tax Act.
- Carry forwarded of losses.
- 100% income tax exemption for 5 consecutive years & 50% for 5 years under section 80LA of the income tax Act for off shore banking units
- Reimbursement of duty paid on furnace oil, procured from domestic oil companies to SEZ units as per the rate of drawback notified by the Directorate General of Foreign Trade.
- SEZ units may be for manufacturing, trading or service activity.
- SEZ unit to be positive net foreign net exchange earner within three years.
- Performance of the unit to be monitored by a committee headed by Development Commissioner and consisting of Customs.
- 100% foreign direct investment in Manufacturing, sector allowed through automatic route barring a few sectors.
- Facility to retain 100% foreign exchange receipts in EEFC a/c
- Facility to realize and repatriate export proceeds within 12 months
- Re-export imported goods found defective, goods imported from foreign supplier on loan basis etc. without G.R. Waiver under intimation to the Development Commissioner
- "Write off "of unrealized export bills up to 5%
- Commodity hedging by SEZ units permitted
- Capitalisation of import payables.
- No Cap on foreign investment for SSI reserved items
- Exemption from industrial licensing requirement for items reserved for SSI sectors
- Profits allowed to be repatriated freely without any dividend balancing requirement
As on 31st March 2005, there are 811 units in operation in the 8 functional SEZs. Investment by the units in these Zones are of the order of Rs 18309 million. The SEZ units provide employment to about 100650 persons out of which 32185 are females.
SETTING UP OF SEZ BY DEVELOPER
Setting up of SEZ in the Public, Private, Joint Sector or by the State Govt. : With a view to augmenting infrastructure facilities for export production it has been decided to permit the setting up of Special Economic Zones (SEZs) in the public, private, joint sector or by the State Govt. The minimum size of the Special Economic Zone shall not be less than 1000 hectares. Minimum area requirement shall, however, not be applicable to product specific and port/airport based SEZ. This measure is expected to promote self-contained areas supported by world-class infrastructure oriented towards export production. Any private /public/joint sector or State Govt. or its agencies can set up Special Economic Zone (SEZ)
Criteria for Approval
Proposals for setting up SEZ in the Public/Private/Joint/State sector are required to meet the following conditions:
- Minimum size of the SEZ shall not be less than 1000 hectares. This would however, not apply to existing EPZs converting into SEZs as such or for notifying additional area as a part of such SEZ or to product specific port/airport based SEZs.
- The SEZ and units therein shall abide by local laws, rules, regulations or bye-laws in regard to area planning, sewerage disposal, pollution control and the like. They shall also comply with industrial with industrial and labour laws and such other laws /rules and regulations as may be locally applicable.
- Such SEZ shall make adequate arrangements to fulfill all the requirements of laws, rules and procedures applicable to such SEZ.
- Only units approved under the SEZ schemes would be permitted to be located in these SEZ.
- At least 25% area of the SEZ shall be used for developing industrial area for setting up such units.
Facilities and Incentives for Developers
- Developers of SEZ may import / procure goods without payment of duty for the development, operation and maintenance of SEZ.
- Income tax exemption for a block period of 10 year in 15 years at the option of developer as per Section 80IAB of the Income Tax Act
- Full freedom in allocation of developed plots to approved SEZ units on a purely commercial basis.
- Full authority to provide service like water, electricity, security , restaurants, recreation centers etc. on commercial
- Foreign investment permitted to develop township within the SEZ with residential area, market, play grounds, clubs, recreation centers etc.
- Develop Standard Design Factory (SDF) building in existing SEZ.
- Income Tax Exemption to investor's in SEZ's under Section 10(23G) of Income Tax Act.
- Exemption from Service TaxInvestment made by individuals etc. in SEZ company also eligible for exemption u/s 88 of the Income Tax Act.
- Development promoted to transfer infrastructure facility for operation and maintenance u/s 80-IA of the Income Tax Act.
- Generation, Distribution and Transmission of Power in SEZs allowed.
Terms and Conditions
- SEZ units have to be a Positive Net Foreign Exchange Earner.
- Performance of the unit will be monitored by a committee consisting of Development Commissioner of the Zone and Customs.
- Units shall maintain proper accounts and furnish details regarding value of import, export etc. to Development Commissioner on a quarterly basis.
Approval of New Units
Proposals for setting up units under EOU/SEZ scheme under automatic route shall be considered by the Unit Approval Committee taking into account the following:-
- Residence proof in respect of individual/partnership firms of all Directors/ Partners. (Passport/ ration card/ driving licence /voter identity card or any other proof to the satisfaction of Development Commissioner;
- Income Tax return of all the promoters for the last three years;
- Experience of the promoters;
- Marketing tie-ups
- In case of EOUs, inspection of the project site by an officer
- A report from other DCs as to whether any case under SEZ/EOU Schemes in regard to diversion of goods etc. is pending.
Whether necessary, the above may be verified through personal interview with the promoters of the project. In the event of the promoters being a well-established entity, the procedure of personal interview may be dispensed with.
The Unit Approval Committee shall meet on Monday, every week. In case of the absence of the Development Commissioner, the meeting will be held by the next senior officer in the Zone. The unit shall intimate the problems being faced by them in advance. In the meetings, apart from the promoters, the other concerned agency with which difficulties are being faced by the unit may also be called.
Recycling of ferrous and non-ferrous metal proposal will be considered only if the unit has Ignots making facility and proposes to achieve value addition.
Sensitive Sectors are shall be taken by the Development Commissioner while approving projects in sensitive sectors such as yarn texturising unit, textile processing, pharmaceuticals/ drugs formulations/ recycling of ferrous and non-ferrous metal scraps etc. Projects for setting up units in sensitive sectors under EOU schemes shall be approved by the Development Commissioner after personal verification of the Directors and inspection of the factory site before signing LUT. Verification could also be carried out through General Manager, District Industries Centre or jurisdictional DY/ Assistant Commissioner of Excise/Customs.