Special Economic Zone (SEZ)

Subject – Economy

Context – ‘Govt. mulls allowing local sales by SEZ units sans import tag’.

Concept –

An SEZ is a territory within a country that is typically duty-free (Fiscal Concession) and has different business and commercial laws chiefly to encourage investment and create employment.
A special economic zone (SEZ) is an area in a country that is subject to different economic regulations than other regions within the same country. The SEZ economic regulations tend to be conducive to—and attract—foreign direct investment (FDI). FDI refers to any investment made by a firm or individual in one country into business interests located in another country.
When a country or individual conducts business in an SEZ, there are typically additional economic advantages for them, including tax incentives and the opportunity to pay lower tariffs.
Special economic zones (SEZs) are typically created in order to facilitate rapid economic growth by leveraging tax incentives to attract foreign investment and spark technological advancement.
While many countries have set up special economic zones (SEZs), China has been the most successful in using SEZs to attract foreign capital.

The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include: –

Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
100% Income Tax exemption on export income for SEZ units for first 5 years,
Supplies to SEZs are zero rated under IGST Act, 2017.
Other levies as imposed by the respective State Governments.
Single window clearance for Central and State level approvals.

SEZs in India:

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.
However, SEZs were operational in India from 2000 to 2006 (under the Foreign Trade Policy).
India’s SEZs were structured closely with China’s successful model.
Presently, 379 SEZs are notified, out of which 265 are operational. 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).
The Baba Kalyani led committee was constituted by the Ministry of Commerce and Industry to study the existing SEZ policy of India and had submitted its recommendations in November 2018.
It was set up with a broad objective to evaluate the SEZ policy towards making it WTO (World Trade Organization) -compatible and to bring in global best practices to maximize capacity utilization and to maximize potential output of the SEZs.