Transcript Title of Presentation

PPC
SEZ & Shared Services – brief
discussion on Tax Issues.
Puneet Puri
Partner, International Taxation
Puneet Puri & Company
CEO, Research & Strategies
SEZ
Special Economic
Zones (SEZ)—
The Next Frontier for India
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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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Legislative framework
SEZ Act 2005
SEZ Rules 2006
Basic framework for
construction,development, operation &
maintenance of SEZs prescribed under
the Act & prescribes the tax and other
fiscal incentives Available.
Rules & regulations defining
guidelines & procedures for effective
operation of the SEZ Act 2005.
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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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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SEZ FORMATS
Type of SEZs
Minimum Area Requirement
(in hectares)
Minimum
Processing
Area (presently
permitted)
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 hect.)
100
(To promote
widespread development,
in certain states and union
territories the
minimum area
requirement has been
reduced to 50 hectares)
50%
IT/ ITES, Gems &
Jewellery, Bio-Tech
and NonConventional Energy
10 with minimum built up area
of:
- 100,000 sq meters for IT
- 50,000 sq meters for Gems &
Jewellery
- 40,000 sq meters for Bio-Tech
and Non-Conventional Energy
50%
Free Trade
Warehousing Zone
40 with minimum built up area
of 100,000 sq.meters
50%
Multi Product
Multi Services/
Sector Specific
50%
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Regulatory Framework – An overview
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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Tax Framework
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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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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
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Special Economic Zones
 SEZs are the latest buzzword in the industry today
 Benefits under the SEZ scheme are high
 Transition from STP to SEZ
 Not allowed to migrate a unit/business registered
with STPI into an SEZ
 Issue is whether majority of the employees of a STP
unit can be transferred into SEZ unit
 In effect, the business, assets and employees of the
SEZ unit would have to be different and distinct from
those of an existing STP unit of the assessee
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Special Economic Zones
 Computation of benefit under Section 10AA
 Similar to section 10A, the benefit is computed
by a formula
 Formula for computing the benefit is
Profits of the business of the undertaking X export turnover
in respect of articles or things or services / total turnover of
the business carried on by the assessee
 The above formula seems to be another challenge which the tax
payers would face
 If it is interpreted to mean that the denominator in the formula is
the entire turnover of the business of the assessee, the benefit
would be much lesser if the assessee carries on more than one
businesses

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THANK YOU
Puneet Puri & Company &
Research & Strategy
www.ppcindia.co.in
www.researchandstrategy.com
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