Special economic zone

Special economic zone

Subject: Economy

Section: External Sector

Context:

The department of commerce under the commerce ministry has notified a new rule 43A for WFH in Special Economic Zones Rules, 2006.

Details:

• The work from home rules are applicable to Special Economic Zones, which are areas subject to a set of different economic regulations than other regions within India.
• Work from home will be allowed in special economic zones (SEZs) for a maximum period of one year, and may be extended to a maximum of 50 per cent of total employees including the contractual employees.
• The new rule provides work from home for a certain category of employees of a unit in SEZ:
  • Employees of IT/ ITeS SEZ units
  • Employees, who are temporarily incapacitated
  • Employees, who are traveling
  • Employees, who are working offsite

• Flexibility granted to development commissioners (DC) of SEZs for:
  • Approving a higher number of employees for a genuine reason.
  • Extension of one year period by further one year on the request of units.
• The notification provides a 90-day transition period to get approvals to SEZ units whose employees are already working from home.
• The equipment and secured connectivity for WFH for the employees should be provided by the SEZ units itself.

Concept:

Special Economic Zone:

• An SEZ is a territory within a country that is typically duty-free and has different business and commercial laws chiefly to encourage investment and create employment.
• Asia’s first EPZ (Export Processing Zones) was established in 1965 at Kandla, Gujarat.
• While these EPZs had a similar structure to SEZs, the government began to establish SEZs in 2000 under the Foreign Trade Policy to redress the infrastructural and bureaucratic challenges that were seen to have limited the success of EPZs.
• The Special Economic Zones Act was passed in 2005. The Act came into force along with the SEZ Rules in 2006.
  • Objectives of the SEZ Act:
    • To create additional economic activity.
    • To boost the export of goods and services.
    • To generate employment.
    • To boost domestic and foreign investments.
    • To develop infrastructure facilities.

• India’s SEZs were structured closely with China’s successful model.
• Presently, 379 SEZs are notified, out of which 265 are operational
• There are eight functional SEZs in India at the moment including — Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta (West Bengal) and Noida (Uttar Pradesh).
• About 64% of the SEZs are located in five states – Tamil Nadu, Telangana, Karnataka, Andhra Pradesh and Maharashtra.
• The Board of Approval is the apex body and is headed by the Secretary, Department of Commerce (Ministry of Commerce and Industry).
• Major Incentives and Facilities Available to SEZ:
  • Duty-free import or domestic procurement of goods for developing, operating and maintaining SEZ units.
  • 100% Income tax exemption on export income for SEZ units under the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years. (Sunset Clause for Units will become effective from 2020).
  • Units are exempted from Minimum Alternate Tax (MAT).
  • They were exempted from Central Sales Tax, Service Tax and State sales tax. These have now subsumed into GST and supplies to SEZs are zero-rated under the IGST Act, 2017.
  • Single window clearance for Central and State level approvals.
  • There is no need for a license for import.
  • In the manufacturing sector, barring a few segments, 100% FDI is allowed.
  • Profits earned are permitted to be repatriated freely with no need for any dividend balancing.
  • There is no need for separate documentation for customs and export-import policy.
  • Many SEZs offer developed plots and ready-to-use space.

Contributions:

• There are about two million people employed across over 350 SEZs.
• SEZs contribute over 25% of total exports from India.
• A majority of SEZs in India include information technology (IT) or IT- enabled services firms.