2. SPECIAL ECONOMIC ZONES
IN CHINA & INDIA
Introduction
- Historical background
- From ancient times – Harappan, Roman to mediaeval times and
later
- Small fenced-in areas specializing in manufacturing for exports
- Modern times – Free ports – Aden, Singapore, Hong Kong –
Difference
- Modern version of export zones starting from Puerto Rico (USA),
Shannon International Airport in Ireland in 1959
- India – Kandla in 1965. EPZs in Taiwan, S. Korea and other
countries
- Since 1979, most extensive, large and successful SEZs in (China)
- After early start, India slow in following up
3. Fundamentals of SEZs
SEZs (special economic zones) are fundamentally
different from the traditional free zones.
They are much larger in size; offer broader range of
activities such as
a single-window management,
streamlined procedures,
duty-free privileges,
also access to the domestic market on a duty-
paid basis.
4. Fundamentals of SEZs
Whether the enclave is termed an EPZ, FTZ or
SEZ, the cardinal factors are
appropriate infrastructure and transport facilities,
low factor cost,
flexible labour laws,
convertibility of currency,
stable legal and administrative regime, and
a commitment to the canons of an open economy
5. Fundamentals of SEZs
Look at Chinese SEZ-Shenzhen SEZ
Total Area of Shenzhen – 1,952.84 sq. kms
Area of SEZ - 395.81 square kilometers
Harbouring 3.5 million people
$30 billion in FDI,
3 million employment
Equipped with the state-of-the-art infrastructure
Effective port facilities,
Simplified procedures,
Fully flexible labour policy in terms of hiring and
firing.
9. Fundamentals of SEZs
Look at Jebel Ali Free Trade Zone
in Dubai
Area - 100 sq km
Home to over 1,600 companies from 85 countries
Triggered the economy and development of Dubai
14. Strategic Location
Easily
accessible by
land, air and
sea. Practically
half of the
world’s
container fleet
passes by its
doorway.
15. Rehabilitated Marine Terminal at the NSD (Naval Supply Depot)
Part of the rehabilitation is the widening of the marine terminal
apron by 12 meters (each side).
16. The new container terminal at the Cubi Point. Around two
million cu.m. of earth was moved to construct the 30-hectare
container yard. Specifications: 2 berths; Depth: 13 meters;
Length: 560 meters.
17. The Subic Bay International Airport, the gateway to Subic
Bay Freeport, is a modern, international airport with 10,000
sq. m passenger terminal, capable of handling 700 passengers
at any given time and featuring the very latest technology for
security and comfort.
19. Main objectives of the SEZ
Act
generation of additional economic activity;
promotion of exports of goods and services;
promotion of investment from domestic and
foreign sources;
creation of employment opportunities;
development of infrastructure facilities
20. SEZ Act, 2005
Passed by Parliament in May 2005
Received Presidential assent on
23rd June 05
Came into effect on 10th Feb 06
supported by the SEZ Rules
22. Tax Incentives
Direct Tax Benefit to Developers
U/s 80-IAB
100% tax holiday for 10 consecutive years
out of block of 15 years
Profit & gains derived from business of
developing SEZ notified on or after 1st
April 2005
Transferee Developer can also claim
deduction for balance period of 10 years
on Operation & Maintenance income
23. Tax Incentives
Direct Tax benefits for Developers
Minimum Alternative Tax
provisions not applicable
Exemption from Dividend
Distribution Tax
24. Tax Incentives
Direct Tax Benefits to Units - 10AA
100% of profits and gains derived from
the export for five Consecutive Years
from which business commences.
50% of for further five A.Y. and
50% of the profits ploughed back for
the next five A.Y.
25. Tax Incentives
Direct Tax benefits for Units
Minimum Alternative Tax provisions not
applicable
Capital gain tax exemption on relocation
to SEZ
TDS
No deduction of tax at source by OBU on
interest on deposits / borrowings from non–
resident or person not ordinarily resident.
26. Tax Incentives
Indirect Tax
Exemption from payment of Import duty
Exemption from payment of Excise duty
Exemption from payment of CST and VAT
on purchase from DTA
Exemption from Service tax
27. SEZ Act, 2005
A Single Window SEZ approval
mechanism has been provided through
a 19 member inter-ministerial SEZ
Board of Approval (BoA).
The applications duly recommended
by the respective State Governments
are considered by this BoA
periodically.
28. Section 7 of SEZ Act,
2005
Exemption from taxes, duties or cess
“Any goods or services exported out of, or imported
into, or procured from the Domestic Tariff Area by, -
(i) a Unit in a Special Economic Zone; or
(ii) 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”
Contd….
29. The Zone Administrator
Development Commissioner
Sec.11 – Development Commissioner
Central Govt. may appoint
Development Commissioner [DC]
Assistants to DC
Sec.12 – Functions of Development Commissioner
Guiding the entrepreneur to establish SEZ;
Taking suitable steps to promote exports;
Ensuring proper co-ordination with the Central Govt. and State
Govt.;
Monitoring the performance of the Developer and the units in SEZ;
etc.
30. Schedules to the SEZ Act, 2005
THE FIRST SCHEDULE (Enactments)
1. The Agricultural Produce Cess Act, 1940 (27 of 1940).
2. The Coffee Act, 1942 (7 of 1942).
3. The Mica Mines Labour Welfare Fund Act, 1946 (22 of 1946).
4. The Rubber Act, 1947 (24 of 1947).
5. The Tea Act, 1953 (29 of 1953).
6. The Salt Cess Act, 1953 (49 of 1953).
7. The Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (16
of 1955).
8. The Additional Duties of Excise (Goods of Special Importance) Act,
1957 (58 of 1957).
9. The Sugar (Regulation of Production) Act, 1961 (55 of 1961).
Contd……….
31. Schedules to the SEZ Act, 2005
10.The Textiles Committee Act, 1963 (41 of 1963).
11.The Produce Cess Act, 1966 (15 of 1966).
12.The Marine Products Export Development Authority Act, 1972 (13 of
1972).
13.The Coal Mines (Conservation and Development Act, 1974 (28 of
1974).
14.The Oil Industry (Development) Act, 1974 (47 of 1974).
15.The Tobacco Cess Act, 1975 (26 of 1975).
16.The Additional Duties of Excise (Textile and Textile Articles) Act, 1978
(40 of 1978).
17.The Sugar Cess Act, 1982 (3 of 1982).
18.The Jute Manufactures Cess Act, 1983 (28 of 1983).
19.The Agricultural and Processed Food Products Export Cess Act, 1985
(3 of 1986).
20.The Spices Cess Act, 1986 (11 of 1986).
21.The Research and Development Cess Act, 1986 (32 of 1986).
32. Schedules to the SEZ Act,
2005
The Second Schedule: Incorporates
modification to the Income Tax Act, 1961, as
applicable to SEZs.
The Third Schedule: Incorporates
amendments to Insurance act, 1938,
Banking Regulations Act, 1949 and Indian
Stamp Act, 1899
34. SWOT Analysis for Indian
SEZs
Strengths:
Skilled Manpower – knows English
Worldwide acceptance of capabilities in fields like
Pharmaceutical manufacturing & research
Clinical trials
Manufacturing auto parts
Engineering designing & consultancy, IT & ITES
Entertainment etc etc
Financial & other institutional Networks like Stock
Exchanges, Insurance Companies, Educational Institutes
Attraction of a large ‘Indian’ market:
growing middle class with purchase power
35. SWOT Analysis for Indian
SEZs
Weakness:
Infrastructure bottlenecks –connecting
infrastructure like Roads leading to SEZs.
Political changes
Convertibility of Currency on Capital A/c
Red Tape
Labour reforms
Zones by & large are still zones not smart cities.
Inappropriate locations
Long gestation period 4 to 5 years in absence of
infrastructure development.
36. SWOT Analysis for Indian
SEZs
Opportunities:
An alternative manufacturing base, particularly
compared to Chinese SEZs.
Services SEZs do not require movement of input
and output physically and hence, surrounding
infrastructure may not matter much.
For multi-product SEZs, almost 23 ports are
available. Most of them are likely to be EDI
compliant.
New small ports & airports are also being developed
keeping SEZ concept in mind.
37. SWOT Analysis for Indian
SEZs
Threats:
Loosing edge of low labour costs - many countries
are competing.
Formation of economic blocks, Effect on
Government Revenues.
Negotiations for FTAs with many countries may
erode competitiveness.
The pattern of buying & selling may not continue.
With relocations of industries in other third world
countries, new competitors will emerge.
39. Major Issues
Land Acquisition
Role of State Govt. in Land Acquisition
Compensation Packages to land owners
Rehabilitation packages for displaced farmers
State Govt.’s commitment to create infrastructure
Time frame for operationalisation
Control over SEZs – MoC or MoF
Amendments to Laws and Rules
41. SEZ Developer
Viable commercial proposition
Active support of State Govt.
Proximity to Port
Financial soundness
Capacity to attract FDI
Generation of employment
Availability of skilled labour in the nearby area and social
infrastructure
42. SEZ Unit
Commercial viability
Selection of a right SEZ
Location,
Area,
Facilities,
Benefits,
State policies,
Infrastructure, etc.
43. SEZ Unit
Credentials of Developer
Proper information about formalities / availability / cost
estimates etc.
Product should be capable of maintaining demand in
the overseas market for a sustainable period.
Availability of required labour in the nearby area
Overall serious commitment to EXPORTING.
44. Discussion Issues
Single window clearance
+VE Net Foreign Exchange (NFE)
Authorized Operations
Ports, Airports, Container yards, Freight Stations
Dedicated Corridors
Enabling Enactments
SEZs a Foreign Custom Territory
Service Tax
Services to DTA not an Import
Stamp Duty – Under whose preview