This article is written by Divya from UILS, Panjab University Chandigarh while pursuing a diploma course in Entrepreneurship Administration and Business Laws from NUJS, Kolkata.
Special Economic Zone: Favourite Investment Destinations
A Special Economic Zone (SEZ) is a geographical region that has economic laws more liberal than a country’s typical economic laws. They are established with an aim to purport development , promote rapid economic growth by providing tax and business incentives for attracting foreign technology along with investment. These are not merely SEZ’s but may be called as “favorite Investment destinations” for foreign establishments. Such units would be future sources of employment, hubs of latest technologies and equipped with the best infrastructure. Today, there are approximately 3,000 SEZs operating in 120 countries.[1]
In this research paper an attempt is made to trace the origin of the SEZ’s, a brief overview of the SEZ Act, 2005 and the latter part mentions about institutions that made India a Software hub.
Concept and Origin of SEZ’s
The first time when the setting up of SEZ came into limelight was when it was established in the Caribbean island Puerto Rico with an aim to attract investment from US. It was in the 1980s China brought SEZs to spotlight by setting up the largest SEZ in Shenzhen.
It was in 1965 that India experimented with the concept of Export Processing Zones (EPZ). Although these EPZ’s somehow failed to achieve the objective they were created for but in the year 2000, there were winds of change where the Export and Import policy allowed the setting up of SEZ’s in all sectors. Subsequently all EPZs were converted into SEZs. And the process for setting up of various SEZ’s was also put into action.[2]
India’s special Act relating to the SEZ came in 2005 taking country’s foreign investment policy and converted its EPZs to SEZs. This act further lays down provisions for setting up of additional SEZ’s which is discussed elaborately further. Currently there are, nearly 200 SEZs operating and approximately 565 have already been given the permission to operate, which are sure to open new doors of investment and opportunities for Indian Markets.
The need for a special Legislation
Before the enactment of the SEZ Act,2005, the necessary provisions in respect of the SEZ’s were a part of the Foreign Trade Policy which is released every five years. The policy discussed the latest incentives and benefits that were conferred to them. The need for this act was well highlighted in the arguments by one of the counsels in a recent case Biomedical Lifescience Pvt vs Union Of India, “In order to give a long term and stable policy framework with minimum regulatory regime and to provide expeditious and single window clearance mechanism, a Central Act for Special Economic Zones has been found to be necessary in line with international practice.[3]
Overview of the Special Economic Zone Act,2005
Government took the initiative of enacting the SEZ Act keeping in mind various objectives including generation of additional economic activity, promotion of export of goods and services, attracting investment from foreign sources as well as domestic along with creating employment opportunities at all levels..[4]
Following the SEZ Act,2005 came the rules in 2006 that lay down comprehensively how a zone first may be classified specifically and then establishment of a unit in that zone, the procedural requirements and other miscellaneous provisions.
Establishing a Special Economic Zone
Application For Filing for SEZ
- The Ministry of Commerce & industry issued a circular in 2008 which provides various online services that are:
- An application may be filed for setting up a SEZ (Form A) on the special website created http://sezindia.nic.in/.
- Requests including Application for authorized operations, change in area/ location, and other land details may be also filed online.
- A separate e-mail box for each developer/ so as to secure quick communication with the Department.
- Online status of requests.
Taxation and SEZ’s
Any goods or services exported out of, or imported into, or procured from the Domestic Tariff Area by –
- a Unit in a Special Zone
- Economic Zone; or
- a Developer;
Shall, subject to such terms, conditions and limitations, as may be prescribed, be exempt from the payment of taxes, duties or cess under all enactments specified in the First Schedule.
The Second Schedule to the Act makes modifications to the Income-Tax Act, 1961.A special Section 10 AA discusses about the Tax incentives that shall be made available to the SEZs.
With an aim make investment in SEZ’s a lucrative option the government introduced various tax incentives. The income tax act was also amended and provisions related to SEZ’s were added to the Act, to provide them with amenities so that they may startup and establish their operations in India. Besides the provisions that have been laid down in the Income tax act, 1961 provisions have also been made under Central Sales Tax Act, 1956, Service Tax Act, 2013; The Central Excise Act, 1944 and the Customs Act, 1962.[5]
To avail the benefits that have been conferred under the Income tax act,1961 a SEZ needs to fulfill certain conditions
- As per Section 2(j) an SEZ shall be deemed to be an entrepreneur, who has been granted the letter of approval by the Development Commissioner under section 15 of the Act.
- Along with this, the Finance Bill 2016 seeks to amend section 10AA where the benefits have been conferred to the SEZ developer are being limited to 31st March 2020. Any SEZ that shall come into operation after this date will not be exempted from the tax, which the current law provides under the Income Tax Act,1961.
- It is necessary that assess either exports certain goods or provides some services out of India from the SEZ.Ultimate aim is to increase exports from the
- Also, it is vital that the SEZ carries out by a proper audit of the Books of the account and needs to submit an audit report as per Form no. 56F.
- Only if the conditions are satisfied, it is only then one shall be eligible to apply for deduction under Section 10AA[6]
Steps that need to taken to ensure the proper Utilization of SEZ’s
Monitored and Regulated Approach: Systematic efforts need to be made to help zone units forge links with the outside units. To make the best use of the SEZ there is a dire need for a comprehensive policy framework which needs to be introduced to ensure that strategies are developed in a timely manner to strengthen the opportunities that are likely to emerge, protect interests of the Special Economic Zones workers, and build a link between Special Economic Zones and the domestic economy. It is only by adoption of a regulated and monitored approach that full worth may be extracted from these potential laden SEZ’s
Better execution : It is essential that the investors are taken into confidence and given rationalized benefits along with an outline for their availability.
Promotion of Strategic Industries: Rationalized Tax incentives to promote industries of strategic importance. Special schemes may be introduced for Technology-intensive and industries which have a lower rate of survival and struggle to survive in the market.
Integration with National Schemes: the much popular Make-in-India initiative could be well integrated with the SEZ to create manifold oppourtunities.
Transparency at all levels: This is a must so that the challenges that come up are tackled effectively, and red-tapism of any kind is reduced and the favourite investment dstinations actually serve as an engine for economic growth.
SEZs have the potential to be a major growth engine for India. The government should act fast to revive them otherwise SEZs will become another missed growth opportunity.[7]
Incentives for Setting Up of SEZ’s in INDIA
The Government of India is keen on making India an export hub and with this aim established several foreign trade zone schemes to promote production which is export-oriented. Such schemes are great incentives for a company to grow and simultaneously they provide an escape through from the country’s restrictive fiscal and infrastructural obstacles and make Indian goods and services competitive in international markets.
Other than the SEZ’s schemes include the Export Processing Zone (EPZ) and the Software Technology Park (STP),which are designated areas for export-oriented activities there are also certain EOU’s that is Export Oriented Units that have also been established with an aim to multiply the exports of the country. They are governed by separate rules and have been conferred various other benefits.[8]
In comparison to China India provides for better options for setting up of SEZ’s as the measures which the Government is providing is more conducive for their functioning. In contrast to China which has only five major SEZ’s functioning contrary India has a huge reservoir of SEZ’s that are upcoming and numerous have already been established. Indian Government is also giving the benefits at all levels to these SEZ’s for their growth.
Software technology Parks in India
Software Technology Parks of India (STPI), is a Government of India initiative that set up and established a society by the Ministry of Communications and Information Technology,Government of India in 1991.
Software Technology Park [STP] Scheme is an absolute scheme for export orientation. This scheme was undertaken with an objective for exporting software services and developing them using data communication links that may be in form of physical media.[9] Such parks offer multifarious services that are required day to day.
The scheme was set up to contribute to the prosperity of the national economy through promotion of exports from the Software & services Industry by facilitating all the statutory services of the Govt., strengthening the Communication Infrastructure
Currently, STPIs that are established across the country are equipped with outstanding infrastructure and statutory support which further aims at improving and enhancing the development process of Information Technology in the country.it is because of these STPI’s that have given India recognition all across the world as a global hub for software services.[10]
The objectives of the Software Technology Parks of India are:
(a) Promotion and development of software and software services including Information Technology (IT) enabled services/ Bio- IT.
(b) Providing statutory and other promotional services to the exporters by implementing Software Technology Parks (STP) that shall be formulated and made by the Government from time to time.
(c) Provision of data communication services including value added services to IT / IT enabled Services (ITES) related industries.
(d) Encouraging micro,small and medium entrepreneurs by creating better opportunities for entrepreneurship in the field of IT/ITES.[11]
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[1] World bank website – James Crittle (IFC) – http://rru.worldbank.org/Discussions/Topics/Topic40.asp taken from http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Special_Economic_Zones.pdf last accessed on 15th February,2017.
[2] https://www.gtap.agecon.purdue.edu/resources/download/4103.pdf last accessed on 15th February,2017.
[3] 3 July, 2013
[4] http://taxguru.in/corporate-law/special-economic-zones-act-2005-an overview.html#sthash.AYuIa83Z.dpuf
[5] http://taxguru.in/corporate-law/special-economic-zones-act-2005-an-overview.html#sthash.9jxBgdwK.dpuf
[6] https://blog.ipleaders.in/special-economic-zone-tax-benefits/
[7] http://www.boomlive.in/special-economic-zones-in-india-growth-engines-or-missed-opportunity/
[8] Research Paper by “SEZs In India: Concept, Objectives And Strategies”Department Of Economics,Bangalore University
[9] http://swapnilkosare.blogspot.in/2015/06/normal-0-false-false-false-en-in-x-none.html
[10] http://www.psalegal.com/pdf/e-newsline-january-201001252010113255am.pdf
[11] http://www.letscomply.com/SEZ-and-STPI-Compliances.php
