Special Economic Zones Sezs

Core Concepts & Definitions

• Special Economic Zone (SEZ): A specifically delineated duty-free enclave treated as foreign territory for trade operations, duties, and tariffs.
• Primary Objective: To promote exports, attract foreign and domestic investment, generate employment, and develop infrastructure facilities.
• Key Features:
  • Duty-free import/domestic procurement of goods for development, operation, and maintenance of SEZ units.
  • Single window clearance for establishing and operating units.
  • Relaxed labor laws (in some states).
  • Exemption from various taxes and duties.
• Deemed Foreign Territory: Goods entering SEZ from Domestic Tariff Area (DTA) are treated as exports; goods leaving SEZ to DTA are treated as imports.

SEZ Act & Rules: Landmark Facts & Chronology

• SEZ Policy Announcement: April 2000 (to overcome the infrastructural and bureaucratic hurdles faced by Export Processing Zones - EPZs).
• Special Economic Zones Act, 2005:
  • Passed by Parliament in May 2005.
  • Received Presidential assent on June 23, 2005.
  • Effective Date: February 10, 2006 (along with SEZ Rules, 2006).
  • Provides for a stable and attractive investment regime.
• SEZ Rules, 2006: Detailed operational guidelines for SEZs.
• Approval Mechanism: Proposals for setting up SEZs are approved by a 19-member inter-ministerial Board of Approval (BoA), chaired by the Secretary, Department of Commerce.

Benefits & Types of SEZs (High-Yield Facts / Exam Tips)

• Benefits for SEZ Units/Developers:
  • 100% Income Tax exemption on export income for first 5 years, 50% for next 5 years, and 50% of ploughed back export profit for subsequent 5 years.
  • Exemption from Minimum Alternate Tax (MAT) for developers.
  • Exemption from Customs Duty, Excise Duty, Service Tax, Central Sales Tax (CST).
  • External Commercial Borrowing (ECB) allowed.
  • No license required for import.
• Types of SEZs:
  • Multi-product SEZ: Caters to multiple sectors.
  • Sector-specific SEZ: Focuses on a particular sector (e.g., IT, Biotechnology, Gems & Jewellery, Textiles).
  • Free Trade Warehousing Zones (FTWZ): Special type of SEZ for trading and warehousing activities.

SEZ vs. EPZ: Important Comparison

Recent Developments & Challenges

• Baba Kalyani Committee (2018): Formed to study the SEZ policy and suggest measures to make it WTO-compatible and maximize its potential.
• Key Recommendations:
  • Shift from export-centric to broader employment and economic growth focus.
  • Allowing DTA units to sell to SEZ units without treating it as export.
  • Flexibility in labor laws.
  • Introduction of a "sunset clause" for tax benefits.
• Development of Enterprise and Service Hubs (DESH) Bill, 2022:
  • Proposed to replace the SEZ Act, 2005.
  • Aims to make SEZs more compliant with WTO rules (which restrict export subsidies).
  • Focuses on promoting domestic manufacturing and services, not just exports.
  • Proposes allowing SEZ units to sell in the domestic market with duties only on imported inputs, not on the final product.