Special Economic Zones (SEZ)

A special economic zone (SEZ) refers to designated areas in countries that possess special
economic regulations that are different from other areas in the same country. Moreover, these
regulations tend to contain measures that are conducive to foreign direct investment.
Conducting business in a SEZ usually means that a company will receive tax incentives and the
opportunity to pay lower tariffs.

India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone
(EPZ) model in promoting exports, with Asia’s first EPZ set up in Kandla in 1965. With a view to
overcome the shortcomings experienced on account of the multiplicity of controls and
clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view
to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was
announced in April 2000.
SEZs are controlled by a three tier Organizational Set-up described as under:
 Supreme controlling body in the Department is known as The Board of Approval
 At district level, The Unit Approval Committee tackles with SEZs development and other
associated issues
 Every district is led by a Development Commissioner, who also controls the Unit Approval
Committee.
Types
1.Free trade zones(FTZ)
It is a tax free area that provides essential facilities for trading, shipping, import, and export
business. By operating in such area, rules and regulation on tariffs, labour, and environment
might be exempted or reduced or less controlled.

2. Export processing zones (EPZ)

Export Processing Zones (EPZs) can be summarized as a unit bearing clusters of specially designed
zones of aggressive economic activity for the promotion of export. The main concept of Export
Processing Zones was conceived in the early 1970s to promote the growth of the sickening export
business of India. Export Processing Zones (EPZs) also encompasses pre-defined infrastructural
facilities and regulations pertaining to establishment of such zones and environmental
stipulations, respectively. These Export Processing Zones of India were established to help the
growth of Indian export commodities, especially from the fast growing sectors. –

3. Free Zones/ free economic zones (FZ/ FEZ),

Free economic zones (FEZ) or free zones (FZ) are a class of special economic zone (SEZ)
designated by the trade and commerce administrations of various countries. The term is used to
designate areas in which companies are taxed very lightly or not at all to encourage economic
activity. The taxation rules are determined by each country.
4. Industrial parks/ industrial estates (IE)
An industrial park (also known as industrial estate, trading estate) is an area zoned and planned
for the purpose of industrial development. An industrial park can be thought of as a more
“heavyweight” version of a business park or office park, which has offices and light industry,
rather than heavy industry.

5. Free ports
A free port is a port or other area with relaxed jurisdiction of customs or related national
regulations.Most commonly a free port is a special customs area or small customs territory with
generally less strict customs regulations (or no customs duties and/or controls
for transshipment). Earlier in history, some free ports like Hong Kong enjoyed political autonomy.
Many international airports have free ports, though they tend to be called customs areas,
customs zones, or international zones.

6. Bonded logistics parks(BLP)

A Bonded logistics park is a type of special economic zone. Trade arrangements are similar to that
of a bonded warehouse but over a specific geographic area. Sometimes with international port
capabilities. Goods may be stored, manipulated, or undergo manufacturing operations without
payment of duty.

7. Urban enterprise zones

An Urban Enterprise Zone is an area in which policies to encourage economic growth and
development are implemented. Urban Enterprise Zone policies generally offer tax concession,
infrastructure incentives, and reduced regulations to attract investments and private companies
into the zones.

Special Economic Zones (SEZ)

Salient features of SEZs
Mentioned below are some of the salient features of Indian Special Economic Zones:

 Indian SEZs are developed by government, private and joint sector, unlike its international
counterparts where zones are chiefly maintained by their respective governments. This
provides equal prospects to both Indian and global players.
 Government has allocated a least favorable area of 1,000 hectares for greenfield SEZs.
Although, there are no limitation in context of favorable area in constructing sector
specific SEZs.
 100% of Foreign Direct Investment is allowed for all endowments in Special Economic
Zones, apart from activities cataloged under the unconstructive record.
 SEZ divisions are obligatory to be encouraging net foreign exchange yielders and are not
entitle to any least amount of value addition guidelines or export responsibilities.
  Commodity surge from Domestic Tariff Area (DTA) into a SEZ is recognized as exports and
commodity surge into DTA from SEZ are recognized as imports.
Benefits of SEZs
Besides offering high end infrastructure and availability to a large skilled workforce, SEZ also
offers attractive incentives and advantages to firms and developers. Mentioned below are some
of the benefits of Indian Special Economic Zones:

 Full Income tax exemption for a period of 5 years and an extra 50% tax relief for additional
two years.
 Manufacturing industry is allowed an FDI influx of 100% via automatic channels excluding
few industries.
 Services to establish off-shore banking divisions in SEZs
 Service Tax and Central Sales Tax exemption
 External commercial lending of upto US$500 million is allowed for SEZ divisions in a year
sans any maturity limitations via certified banking networks.
 No import authorization obligations.
 Services to sustain foreign exchange proof of payments of upto 100% in Exchange Earners’
Foreign Currency Account.
 SEZ franchisees are allowed100% FDI in offering customary telephone facilities in the
areas.
 No limitation of foreign endowments for small scale industry reticent products.
 Tax relief from sectoral authorization obligations for goods reticent for SSI industry
 Tax relief from custom tariff on import of merchandize, raw products, spare parts etc
 Tax relief from Central Excise tariff on acquirement of merchandize, raw products, spare
parts etc from the local market
 No regular assessments by Customs for export and import freight.
 Capacity to comprehend and repatriate export advances within a year.
 Revenues permitted to be repatriated sans any dividend assessment needs
 Authorization for Employment prospects on behalf of local exporters for direct export.
 Authorization for off-shoring of local and global players. This service is accessible to
jewelry sector also.
Mechanism of setting of SEZ
There are 3 channels in getting a SEZ establishing permission India as follows:

 Channel 1
The company (developer) which wants to establish the SEZ shall make the proposal to the
government. Then, the government sends the proposal with suggestions to the Board of
Approval for the consideration within 45 days commencing from the proposal date of the request
made by the company. The approval from the Board shall carry out within 30 days. The company
receives the letter issued by the federal government. Later, the company shall inform the details
of the necessary information requested to the federal government.

 Channel 2
The developer can directly submit the proposal through the Board of Approval. The developer
will receive the approval within six months from the date of receiving the proposal. The other
processes will be the same as Channel 1.

 Channel 3
The federal government announced for SEZ proposal development from developers in a
designated area. By the Special Economic Zone Act 2005, the approval board comprises of 19
members selected by the federal government. However, Ministry of Commerce and Industry is
the president of the board. Others are from the government authorities and agencies.