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LOGISTICS KNOWLEDGE SERIES - SEZ, EOU and FTWZ

SEZ, EOU and FTWZ TRADE ZONES Trade zone is a designated area that eliminates traditional trade barriers such as tariffs/duties, taxes to some extent and minimizes regulations. The goal of a free trade zone is to enhance global market presence of the country or location by attracting new businesses and foreign investments. To provide an internationally competitive and hassle free environment for exports. Tax- free trade zones generate foreign exchange through exports and create economic value add SPECIAL ECONOMIC ZONES A special economic zone is an area in a country that is subject to unique economic regulations that differ from the rest of the country. SEZ regulations are more conducive/supporting for foreign investments In order to make the goods manufactured in SEZ competitive in price, SEZ’s are exempt from federal laws regarding taxes, quotas, customs tariffs and labour regulations. Additionally companies are offered tax holidays, income tax exemptions etc. Special Economic Zones are deemed to be foreign territory for the purposes of trade operations and duties and tariffs. SPECIAL ECONOMIC ZONES India was the first country in Asia to recognise the effectiveness of an export zone and set up the first export processing zone in Kandla (Gujarat) in 1965. A Special Economic Zone policy was announced by the government in April 2000, with an objective to make SEZ’s an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package both at the centre and the state level with minimum possible regulations. The Special Economic Zone Act, 2005 was passed by the Parliament of India and came into effect in 2006 OBJECTIVES OF AN SEZ The main objective of an SEZ is to provide internationally competitive and hassle free environment for exports Promotion of exports of goods and services Promotion of investments from domestic and foreign sources Creation of employment opportunities Development of infrastructure facilities Generation of additional economic activity TYPES OF SEZ There are 2 major types of SEZ SECTOR SPECIFIC SEZ Sector specific SEZ manufacture goods and services in a particular industry or sector E.g.: Biotech SEZ in Bangalore, IT & ITES SEZ in NOIDA, Gems and Jewellery SEZ in Kolkata MULTI PRODUCT SEZ A Multiproduct SEZ produces goods and services combining different industries E.g. NOIDA SEZ, Kandla SEZ, MEPZ in Chennai, Cochin SEZ, Kerala, Falta SEZ, West Bengal HOW TO SET UP SPECIAL ECONOMIC ZONES Who approves for SEZ – BOA (Board of Approval) under the Ministry of Commerce. Developer submits the proposal to the state government. State government to review and submit to BOA within 45 days. Who can set up SEZ – any private/public/joint sector or State Govt. or its agencies can set up an SEZ Who monitors the functioning of SEZ– performance of SEZ is monitored by a unit approval committee consisting of development commissioner, customs and representatives of state government on an annual basis. What are the benefits for business units that come into SEZ: Simplified business operating environment - customs procedures and processes and package of incentives (tariffs/duties & taxes) HOW TO SET UP COMPANY WITHIN AN SEZ A company planning to set up unit in SEZ should apply with the respective development commissioner office of SEZ zone. Company must file online application using Form –F stipulated by SEZ rules under the New Unit Application module. Company must provide all the necessary details along with the list of documents as specified which will be reviewed by the DC Upon verification of all the details, the DC will approve the request for setting up the unit by providing a letter of approval. The company must now sign a lease agreement with the developer of the SEZ along with providing the date of commencement of operations BENEFITS FOR COMPANIES UNDER SEZ SCHEME Duty free import/domestic procurement of goods for development, operations and maintenance of SEZ. This includes capital goods, raw materials, consumables, packaging materials, office equipment etc. 100% FDI allowed through automatic route Units in SEZ get a phased tax-holiday for a period of 15 years under Sec 10AA of the Income Tax Act – 100% income tax exemption on export income for first 5 years, 50% for the next 5 and thereafter 50% of the ploughed back export profit for the next 5 years. Exemption from GST. SEZ units are free to sub-contract part of their production with the permission of customs authorities BENEFITS FOR COMPANIES UNDER SEZ SCHEME SEZ units are free from periodic examination by customs for export and import cargo. The units will also be able to do self-certification of import and export transactions. Liberal labour laws Units operating under SEZ should show a positive net foreign exchange earnings for a period of 5 years from the date of commencing operations.