Transcript Document

Special Economic Zone
A Conduit for Exceptional
Economic Growth
Premise
• Special Economic Zones (SEZ) are
growth engines that can boost
manufacturing, augment exports and
generate employment. The SEZs require
special fiscal and regulatory regime in
order to impart a hassle free operational
regime encompassing the state of the art
infrastructure and support services.
Contd.
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Premise
• On this backdrop Special Economic Zone Act,
2005 was introduced and made effective from
10th February 2006 alongwith notification of
SEZ Rules
• SEZ Act has been enacted to provide for the
establishment, development and management
of the zone including Free Trade Zone &
Warehousing Zone for the ‘promotion of
exports’ and for matters connected therewith or
incidental thereto
Contd.
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Premise
• It is anticipated that this new regime will
trigger a large flow of foreign and
domestic investment in SEZs, in
infrastructure and productive capacity,
leading to generation of additional
economic activity and creation of
employment opportunities.
Contd.
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Premise
• SEZ is a specifically delineated duty free
enclave and shall be deemed to be foreign
territory for the purposes of trade operations
and duties and tariffs.
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Fiscal Benefits of operating in SEZ
(Indirect tax)
• Any goods or services exported out of the SEZ
units or imported into the SEZ units will be
exempt from the payment of taxes, duties and
cess leviable under specified Acts.
• Goods or services procured from the Domestic
Tariff Area will also be exempt from the
payment of taxes, duties or cess leviable under
specified Acts.
Contd.
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Fiscal Benefits of operating in SEZ
(Indirect tax)
• Exemption from any duty of customs on goods
imported into or service provided in a SEZ
• Exemption from any duty of customs on goods
exported from or service provided from a unit
in a SEZ
• Exemption from any duty of excise on goods
brought into SEZ from DTA
Contd.
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Fiscal benefits of operating in SEZ
(Indirect tax)
• Drawback on goods brought or services
provided from the DTA into a SEZ
• Drawback on services provided in SEZ by
service providers located outside India
• Exemption from Service tax on taxable
services provided
• Exemption from the levy of taxes on the sale
or purchase of goods under Central Sales tax
Act.
Contd.
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Fiscal Benefits of operating in SEZ
(Indirect tax)
• Explicit elucidation of the terms and
conditions subject to which exemptions,
concessions, drawback
or other benefits
available notified vide SEZ Rules
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Fiscal Benefits of operating in SEZ
(Direct tax)
• Exemption from income tax on 100% of
profits derived from exports for 5 consecutive
years and 50% for further 5 consecutive years.
Additionally for further 5 years exemption
available to the tune of creation of Reinvestment Reserve and utilization of Reserve
so created for specified purpose subject to
maximum of 50% of profits derived from
exports.
Contd.
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Fiscal Benefits of operating in SEZ
(Direct tax)
• 100% deduction on profits and gains derived
by an undertaking from development of SEZ
for 10 consecutive years
• 100% deduction of such income of
OBU/IFSCs as specified for 5 consecutive
years
• Exemption of Capital Gains on transfer of
assets in cases of shifting of Industrial
Undertaking from urban area to any SEZ
Contd.
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Fiscal Benefits of operating in SEZ
(Direct tax)
• Immunity to SEZ units from applicability of
provisions of Minimum Alternative tax
• Exemption from levy of tax on distributed profits of
either SEZ developer of unit
• Exemption from income tax on interest received by a
Non-resident or person not ordinarily resident on
deposit in OBUs
• Exemption from Securities transaction tax in case the
taxable securities transactions are entered into by a
non-resident through the International Finance
Service centre
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Benefits to DTA Suppliers
• Supplies from Domestic Tariff Area (DTA) to
SEZ to be treated as physical export. DTA
supplier would be entitled to :
– Drawback/DEPB
– CST Exemption
– Exemption from State Levies
– Benefits under Excise
– Income Tax benefit as applicable to physical
export
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Supplies to DTA by SEZ units
• Any goods removed from a SEZ to DTA shall
be chargeable to duties of customs as leviable
on such goods when imported and the rate of
duty and tariff valuation applicable to goods
removed from a SEZ shall be the rate and tariff
valuation in force as on the date of such
removal. Valuation of goods and/or services
cleared into DTA shall be determined in
accordance with provisions of customs act and
rules made there-under as applicable to goods
when imported into India.
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Miscellaneous
• 100% foreign direct investment under the
automatic
route
is
allowed
in
manufacturing sector in SEZ units except
arms and ammunition, explosive, atomic
substance, narcotics and hazardous
chemicals, distillation and brewing of
alcoholic drinks and cigarettes , cigars
and manufactured tobacco substitutes.
Contd.
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Miscellaneous
• A SEZ will be deemed to be a territory
outside customs territory of India for the
purpose of undertaking authorized
operations.
• A SEZ will be deemed to be a port, ICD,
land customs stations as the case may be.
Contd.
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Miscellaneous
• Agriculture/Horticulture processing SEZ units
allowed to provide inputs and equipments to
contract farmers in DTA to promote production
of goods as per the requirement of importing
countries.
• Any private/public/joint sector or State
Government or its agencies can set up Special
Economic Zone (SEZ).
Contd.
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Miscellaneous
• Documentation for various activities of the
units has been reduced to the barest minimum
with an emphasis on self-certification
• The foreign trade policy restrictions on STE
shall not apply to SEZ manufacturing units
except Iron ore.
• The state govt. may grant exemption from the
state taxes, levies and duties
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SEZ Disclaimer
• The SEZ unit shall achieve Positive Net
Foreign
Exchange
to
be
calculated
cumulatively for a period of 5 years from the
commencement of production . SEZ units have
to achieve positive net foreign exchange
earning as per the formula given in SEZ Rules.
For this purpose, a Legal Undertaking is
required to be executed by the unit with the
Development Commissioner. The units have to
provide periodic reports to the Development
Commissioner and Zone Customs as provided
in SEZ Rules.
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Overview of Present SEZs
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Santa Cruz (Maharashtra),
Cochin (Kerala),
Kandla and Surat (Gujarat),
Chennai (Tamil Nadu),
Visakhapatnam (Andhra Pradesh),
Falta (West Bengal)
Nodia (Uttar Pradesh) and
Indore ( Madhya Pradesh )
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Upcoming SEZs
In addition 18 approvals have been given for setting up of SEZ at
• Positra (Gujarat),
• Navi Mumbai and Kopata (Maharashtra),
• Nanguneri (Tamil Nadu),
• Kulpi and Salt Lake (West Bengal),
• Paradeep and Gopalpur (Orissa),
• Bhadohi, Kanpur, Moradabad and Greater Noida (U.P.),
• Vishakhapatnam and Kakinada (Andhra Pradesh),
• Vallarpadam/Puthuvypeen (Kerala)
• Hassan ( Karnataka),
• Jaipur and Jodhpur ( Rajasthan)
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Conclusion
• SEZ operations are in existence for almost 5 years now
though, all operational as well as financial benefits were
governed by the Foreign Trade policy and the respective
fiscal statutes. It cannot be doubted that with notification of
this special, separate and transparent Act and Rules
elucidating comprehensive terms and conditions of
operation including fiscal benefits, investments as targeted
can be meet, however, to see investments in line with
Chinese SEZs establishments, feel that not only much needs
to be done to give effectiveness to single window clearance
enactments but liberalization in labor and allied laws must
also be made and adhered too within the zone apart from
creating & maintaining world class infrastructure.
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Thank you
Deoki Nandan Muchhal
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