Community Empowerment by Dr. SBM Prasanna, Dr. K Puttaraju, Dr.MS Mahadevaswamy (books under 200 pages TXT) 📕

In 1983 it was decided to set-up four more EPZ’s in the state of Tamil Nadu, West Bengal, Kerala and Uttar Pradesh, at Madras (MEPZ), Falta (FEPZ), Cochin (CEPZ) and small Noida (NEPZ) respectively. While MEPZ and FEPZ were operational during 1985-86, CEPZ and NEPZ commenced exports in 1986-87. The seventh zone was decided to be set up in Vishakhapatnam (Andhra Pradesh) in 1989. EPZ at Vishakhapatnam (VEPZ) became operational from 1994-95.

The objectives of the Indian EPZs have been succinctly summed up by the Ministry of Commerce as ‘EPZs are intended to provide internationally competitive duty free environment for export production at low cost. The objectives to be achieved include increase in foreign exchange earnings and stimulation of domestic and foreign investment and creation of employment opportunities.

The EPZs in India were developed, owned and managed by the Central Government. The scope of the permitted activities for operating in the zone was initially limited to processing or manufacturing with project wise specified value addition norms for strict compliance. The scope was subsequently expanded to include activities like trading, reconditioning and re-engineering in the zone also with specific value addition guidelines.

It took almost five years for SEZ concept to take a definite shape in India. The concept of SEZ was the brain child of late Sri Murasoli Maran former Union. Commerce Minister. During his China visit he had occasion to visit some of the SEZs there and he was greatly impressed by the progress achieved by SEZs and their impact on the economy. He included the concept in the Export–Import Policy 2000. His idea was to create some SEZs in India and develop them on the lines of SEZs in China. He has the desire of using SEZ concept as a medium of speedy economic growth in India. Despite the prolong debate; the SEZs Act was passed in May 2005 in the Parliament. It received presidential assent on 23rd June 2005 and came into effect on February 2006 supported by SEZ Rules.

With the announcement of Special Economic Zone Scheme, three of the existing Export Processing Zones (EPZs) – at Kandla, Santa Cruz, Cochin were converted into SEZs with effect from November 1, 2000 so that they would be in a position to avail of the benefits of preferential policies and incentives offered to SEZs. And with effect from January 1, 2003 NEPZ, FEPZ, MEPZ and VEPZ also were converted into Special Economic Zones.

The policy provision for setting up of EPZs only by the Central Government was modified in 1994 to enable State Government, autonomous agencies and the private sector to develop infrastructure fornew zones or strengthen the same in existing zones. [46] The first private sector SEZ was developed at Surat (Gujarat) by the Diamond and Gem Development Corporation over an area of 123 acres (499000 sq.m.) with an initial investment of INR 32.46 crore in the year 1997. It commenced production from 2000-2001 with an export turnover of INR 62.28 crore in the first year itself. Surat Zone primarily caters to the diamond processing units involved in diamond cutting, finishing and diamond jewelry production for exports.

AN OUTLINE FRAMEWORK OF SEZS IN INDIA:

Considering the need to enhance foreign investment and promote exports from the country and realizing the need that level playing field must be made available to the domestic enterprises and manufactures to be competitive globally. An outline framework has been drafted (in the SEZs) by the central government in a manner in which to develop both manufacturing as well as to improve the export performance.

This policy intended to make SEZs an engine for economic growth supported by infrastructure complemented by an attractive fiscal package both at the central and state with the minimum possible regulations.

Special Economic Zone Act 2005:

Under the new legislation, SEZ would be treated as deemed foreign territory for trade operations, duties and tariffs, and supplies from domestic industry would be treated as exports. Goods and services going into the SEZ area from domestic tariff area (DTA) shall be treated as exports and goods coming from the SEZ area into DTA shall be treated as if these are being imported. The basic objective for setting up of SEZ has been spelt out:

Generation of additional economic activity.

Promotion of export of goods and services,

Promotion of investment from domestic and foreign sources,

Creation of employment opportunity, and

Development of infrastructure.

In addition, there would be many associated advantages accrued in the process and some of these are:

Acquiring and upgrading labour and management skills,

Attracting advanced technology,

Development of the region with feeder industry, and

Establishing linkage with rest of the economy.

Management Structure of SEZs

In India, the SEZs are constituted as departmental undertaking under Ministry of Commerce, Government of India. Each zone is headed by a Development Commissioner (DC), a civil servant, appointed by Central Government. The highest decision and policy making body is the concerned EPZ authority, which is headed by the Minister of State for Commerce in the Central Ministries and the state government as members along with DCs of the SEZs.

The Authority meets periodically to undertake a review of the SEZ and co-ordinates inter departmental issues.All approvals, licenses and other matters are dealt with by the concerned SEZ Board, which meets regularly under the Chairmanship of the Additional Secretary, Ministry of Commerce with representatives of concerned Ministries.

The responsibility for development, promotion and maintenance of SEZ vests with the Central Government in the Ministry of Commerce. The DCs have been delegated authority for the management of the zones including granting permission to functioning of the units. However, the State Governments provide support for power and water supply, public transport, approach road, beside requisite social and economic infrastructure such as housing, schools, hospital, shopping centres and recreational facilities. Pollution clearance certification, approval of building plans, registration as small scale unit and grant of public utility status are other matters which fall under the purview of the State Governments. But there is no direct involvement of State Governments in the management of the zone.

Facilities and Incentives for Units of SEZs

In addition to developed infrastructure, various other facilities and incentives offered by the Central Government to attract investment in the zone are as under:

Duty free procurement of capital goods, raw materials, consumable spares etc. from the domestic market.

No license required for import.

100% Income Tax exemption on export income for SEZ units under Section 10A A of the Income Tax Act for first 5 years, 50% for next 5 years.

Exemption from minimum alternate tax under section 115JB of the Income Tax Act.

Manufacturing, trading or service activity allowed.

Domestic sales on the full custom duty subject to import policy in force,

Full freedom for subcontracting.

Subcontracting of part of production permitted abroad.

No routine examination of export and import cargo by customs.

Facility to realize and repatriate exports proceeds within 12 months.

Re-export imported goods found defective, goods imported from foreign suppliers on loan basis without G.R. waiver under intimation to the zone customs.

Facility to retain 100 percent Direct Investment in manufacturing sector allowed through automatic route barring few sectors.

Exempt from service tax,(subject to Export of Service Rules).

Exemption from Central and States Sales Tax (to sale made from domestic tariff area to SEZ units).

Facility to set up offshore banking units in SEZs.

100 percent FDI to SEZ Franchisee for providing basic telephone service in SEZs.

External commercial borrowing by SEZ unit up to US $ 500 million in a year without any maturity restrictions through recognized banking channels.

Exemption from electricity duty.

Products manufactured and exported from the zone are exempted from export control order.

For every unit in the zone the percentage of scrap and waste is fixed, and this can be disposed of in the DTA after payment of duties.

Sale of 100 percent of production in the domestic market allowed against valid import license.

Packing credit facility for a period of 180 days without production to firm export order of Letter of Credit.

Term Finance is offered at concessional rate of interest for fixed assets,

Fully owned foreign companies can invest in the zone.

There is no bar for investment in the zone even in the area where foreign technical know-how and capital are barred for units in the DTA.

Rebate on warfare charges at the port.

POL products are made available at international prices.

Subject to adjustment against the normal entitlement within one year. trial production is allowed for sale in Advanced Domestic Tariff Area.

Supplies from DTA are treated as deemed exports and they are eligible for various benefits.

Capital goods from domestic, foreign leasing company can be sourced by SEZs,

Imported and manufactured goods can be transferred internally.

Debonding and one time conversion of EPCG scheme is permissible.

Third party can be involved in the Exports.

Private Bond houses can be set up in SEZ for stock and sale of duty free raw materials, components.

SEZ units carrying out re-conditioning, repair and re-engineering activities for export in freely convertible foreign currency can be set up.

100 percent of export earnings at market rate can be converted and there is no restriction on foreign shareholding.

Foreign capital along with appreciation if any after payment of taxes can be repatriated.

Profits and Dividends can be remitted unrestrictedly.

SEZ units can club their earning with DTA parent house for claiming Export House, Trading House, and Star Trading House Status.

Procure goods from the DTA without payment of duty or import goods duty free for the development, operation and maintenance of SEZ.

Full freedom in allocation of developed plots to approved SEZ units on purely commercial basis.

Essential requirements like water, electricity, security are provided to all units in the zone on priority.

Incentives by State Government

While the basic infrastructure within the zone is provided by the zone developers, certain other associated social infrastructure specifically for the industries in the zone is taken care of by the State Government. These include:

State financial corporations assist in getting necessary financial assistance for the units.

Zone units are declared as public utility services under the Industrial Disputes act and strikes without adequate notice are rendered illegal.

Sales Tax exemption in respect of the zone units for export production.

Facilities for Developments of SEZs

The Government has also announced a range of facilities for the develops of SEZs subject to meeting the prescribed guidelines as per SEZ Rules, 2006 and these include:

Duty free import/domestic procurement of goods for development, operation and maintenance of SEZs and SEZ units.

Full freedom in allocation of developed plots to approved SEZ units on purely commercial basis.

Full authority to provide services like water, electricity, security, restaurants, recreation centres etc. on commercial lines.

Facility to develop township within the SEZ with residential areas, markets, play grounds, clubs and recreation centres etc. with 100 percent FDI.

Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act.

Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.

Exemption from dividend distribution tax under Section 1150 of the Income Tax Act.

Exemption from Service Tax

Exemption from Central Sales Tax on sales made from Domestic Tariff Area to SEZ’s

External commercial borrowing by SEZ units up to US $ 500 million in a year without any maturity restriction through recognized banking channels.

Permission to carry forward losses.

Treating supplies from domestic tariff area to SEZ at par with physical exports for the purpose of income tax exemption.

SPECIAL ECONOMIC ZONES RULES, 2006

In exercise of the powers conferred by section 55 of the Special Economic Zones Act, 2005 the Central Government notified the Special Economic Zones Rules, 2006 on February 10, 2006. The rule comprehensively provides the essential requirements for setting up a unit in a SEZ, guidelines for the developer, the procedure to be followed from submission of application for approval, procedure for procurement of inputs, sub-contracting from outside, sale in DTA, monitoring of the performance of individual unit to de-bonding of the unit. The salient features are:

Size of the SEZs: the requirement of land area/built up space for different categories of zones as specified in the rule are as under;

A multi-product zone to have a minimum area of the thousand hectares and not exceeding five thousand hectares, and incase the zone is proposed to be set up in Assam, Meghalaya, Nagaland, Arunachal Pradesh,