Special Economic Zone (SEZs)

Origin of SEZs

Although the policy the Special Economic Zone(SEZ) came into inception on April 1, 2000, its origin goes back to year 1965 when India, recognizing the effectiveness of the Export Processing Zone (EPZ) model for promoting exports, setup its first EPZ in Kandla. By doing this India became the first country in Asia to recognize the value of export, and EPZ of Kandla became first in Asia of its kind.

However, due to various controls and clearances, an unstable fiscal regimes, and the absence of world class infrastructure these EPZs did not perform effectively. Thus in the process of correcting the policies of EPZ emerged the conception of SEZs, which were announced in 2001 that finally culminated into Special Economic Zones Act, 2005 that was finally enacted in 2006 supported by SEZ rules, 2006.

Why Special Economic Zones Act

Before the enactment of SEZ Act, 2005, the policy related to SEZs was basically contained in the foreign trade policy and was primarily implemented through ad hoc and piecemeal amendments to different laws, besides executive orders. So to overcome these pitfalls and provide a long-term and stable policy framework with minimum control and regulation, the SEZ Act, 2005 came into force.

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What is a Special Economic Zone (SEZ)

SEZ is a Special Geographical duty-free enclave that possesses economic laws different form a country’s typical economic laws, and is to be considered to be foreign territory for the purposes of trade operations and duties and tariffs. Its primary goal is to enhance foreign investment. several countries including China, India, Jordan, Kazakhstan, Philippines, Poland and Russia have set up SEZs. North Korea too has tried to set up SEZs to some degree.

Setting Up SEZs

SEZs can be set up by any private/ public/ joint sector or State government or its agencies. Even a foreign agency can establish SEZs in India.

Role of Statements in Government in setting up SEZs

In setting up SEZs State governments have a very important role to play because they are consulted in the process of preparing the proposal for setting up SEZs, because a state government is a member of the inter-ministerial committee on private SEZ. It is normative that the states have to satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc. Before finally recommending any proposals to the Ministry of Commerce.

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Objectives of SEZ Act

At the time of the enactment of SEZ Act, its objective was to make a hassle-free regime by formulating rules for the purpose. However, at present its objectives can be summed up as: (a) promotion of exports of goods and services; (b) promotion of investment from domestic and foreign sources; (c) generation of additional economic activities; (d) development of infrastructure facilities; (e) creation of employment opportunities.

Steps Taken for Speedy Implementation of SEZ Projects

For the speedy implementation of SEZ projects the SEZ Act, 2005 caters for establishing Single Window Clearance Mechanism. Accordingly, the State Governments are also petsuaded, in order toprovide investors a friendsly invironment, on a regular basisto enact their SEZ. From time to time SEZ rules and procedures are examined to speed up implementtation of SEZ projects.

In 2014, in all SEZs activities, concerned to Developers and Units, were identified and for their completion time-frames were prescribed.

The rules of operations made by RBI, IRDA, SEBI, Ministry of Finance were notified by the Central Government for the Units in an International Financial Services Centre (IFSC), in SEZs.

Digitization and on line processing of various activities concerned to SEZ was introduces in all SEZs in 2014.
The Central Government has permitted dual use of facilities, with a view to create Social and Commercial infrastructure in Non-Processing Areas (NPA) of SEZ, in NPA both by SEZ and non-SEZ entities.

With a view to expedite paperless transaction for movement of goods for imports and exports from SEZs to ports, the Central Government decided to integrated the Customers ICEGATE System to SEZ Online system. For this purpose a pilot project was launched in Madras SEZ in 2015.

Accomplishment(s) of the SEZ scheme

The SEZ has, so/far, received a tremendous response among the investors, both in India and abroad. The flow of investment and the creation of additional employment have increased. An overall growth of export of 1,930.51 per cent over past ten years (2005-6 to 2014-15) has been recorded. 15,04,59 persons were provided employment under the SEZ scheme.

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An overall Assessment of SEZs

In the first week of March 2016 it has come to the light that the commerce Ministry is concerned over the Finance Ministry proposal of differential tax rate in the budget for the International Financial Services Centre (IFSC) to come up in a Special Economic Zone in Gujarat, and rest of the SEZs. The Gujarat International Finance Tech-City (GIFT) in Gandhinagar (Gujarat) is the only IFSC in India.

For the first few years, the export-oriented SEZ-Sector that is slated to play an important part in encouraging overall exports has been indicating a slowdown in terms of investment, exports and employment generation.
The imposition of 18% MAT on SEZ developers and units as well as Dividend Distribution Tax (DDT) on developers has resulted in lesser number of SEZ notifications, slower operationalization of SEZs and more application for DE-notification of approved SEZ.

These taxes are certainly going to dent the investor- friendly image of SEZs and create uncertainty in the minds of foreign and domestic investors.

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3 COMMENTS

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