SEZ

Special Economic Zone (SEZ)

» A geographical region that has economic laws that are more liberal than a country's typical economic laws.

» 1947 1st SEZ in USA

FEATURES

» Duty-free imports of capital goods and inputs for production for Export

» Liberal access to foreign exchange

» Encouragement to FDI

» Simplified, “one-stop” approvals

» Generous tax concessions esp. in early years

» Flexible Labour Laws

» Limitations on sales within the country

» Better Infrastructure (Power, Transport & Communications)

Category 'SEZ' covers

» Free Trade Zones (FTZ)

» Export Processing Zones (EPZ)

» Free Zones (FZ)

» Industrial Estates (IE)

» Free Ports

» Urban Enterprise Zones and others

INDIA» Asia’s 1st Export Processing Zone (EPZ) was set up in Kandla

(Gujarat) in 1965.

» In 1990s, as a part of reforms, powers delegated to zone

authorities

» New Policy in April 2000

» Special Economic Zones Act 2005

» Full law and implementing rules effected February 2006

FACILITIES NOTIFIED

» No license required for import

» Single window approval by Development Commissioner of the zone

» No license needed to manufacture items reserved for SSI sector

» 100% FDI allowed in manufacturing through automatic route except in sectors such as defense, atomic energy

» External commercial borrowings by units allowed without any maturity restrictions

» Freedom to bring in export proceeds without any time limit

» Foreign cos permitted to set up branches for manufacturing activities

» Exemption to sales made from Domestic Tariff Area

» Duty free import or domestic procurement of goods for development, operation and maintenance

» 100% IT exemption (10A) for first 5 years

50% for 2 years & 50% of reinvestment for 3 years

» Offshore Banking Units allowed to have full IT exemption for 3 years and 50% for next two years

» Exemption from Service Tax

» Permitted facilities like golf courses, de-salination plants, hotels and non-polluting service industries in the Coastal Regulation Zone area

» Total land in lndia=2973190 sq. Km Total agricultural land=1620388 sq. km. Sez formally approved (234)=350 sq km Sez in principal approval (162)=1400 sq km Total area proposed for sez= 1750 sq km. Which is merely 0.047% of the total land and 0.086% of the total agricultural land.

All 8 EPZs converted into SEZs

• Kandla ( Gujarat) : 1965 (625 Acres)• Seepz( Maharashtra) : 1975 (110 Acres)• Noida (U P) : 1986 (310 Acres)• Madras ( T N) : 1986 (262 Acres) • Cochin ( Kerala ) : 1986 (103 Acres)• Falta ( W B) : 1986 (280 Acres)• Visakhapatnam( AP) : 1994 (360 Acres)• Surat ( Gujarat ) : 1998 (103 Acres)

Present & Future

Current investment & employment 07- 08    – Investment:                 Rs. 67088 crores – Employment:               2.8 Lakh People

Expected investment and employment by Dec 09– Investment:                 Rs. 125000 crores – Employment:               17,43,530 additional jobs

China

» Started soon after beginning of reforms in 1978.

» Policy of preferred regions – unequal growth – open-door policies

» Overriding approach based on Deng’s Observation

Reasons for Success

» Unique locations

» Large size & local authorities with foreign collaboration

» Investment-friendly towards Non-Resident Chinese and Taiwanese

» Attractive incentive packages for foreign investment Liberal customs procedures

FACILITIES NOTIFIED

» Corporate Income Tax rate is 33% (Central + Provincial)

» Tax incentives and holiday rates are not applicable to service and domestic distribution income

» Value Added Tax (VAT), Business Tax etc. often apply

» Transfer pricing has become an emerging issue

» Tax incentives and holidays

› Manufacturing tax incentives

› High technology incentives

› Special Economic Zone incentives, e.g.

Shanghai 24%, Pudong 15%

Guangzhou 24%, Shenzhen 15%

› Shenzhen› Xiamen› Shantou› Zhuhai› Hainan

INDIA vs CHINA

Issue China IndiaSize Typically in hundreds of

hectares. Even 10 hectares will do

Location located only on coasts. Anywhere. No restriction

Labour laws Relaxed Flexibility is totally absent

Policy regime Experimentation of liberal policies in the specified areas

Based on fiscal sops

Investors Basically foreigners who are wooed with sops and promise of stability in policy.

Basically locals. Not foreign investor driven

Commencement In 1979 In 1969 with the export processing zone concept,but failed

Number Only six: Shenzhen, Zhuhai, Shantou, Xiamen, Hainan and Pudong

So far 28 operational. About 200 received approvals

Tax holidays Present Longer and steeper than in China

» Shenzhen is the largest SEZ in China and is spread over 493 Sq Kms.(49,300 hectares).

» While the largest SEZ in India, Reliance - Navi Mumbai and Maha Mumbai SEZ, is mere 14,000 hectares