The commerce ministry is informing a bunch of direct and oblique incentives akin to deferral of import duties and exemption from export taxes to revamp Special Economic Zones by brand new laws, an official mentioned. Let’s explore the notification in detail.
Commerce Ministry proposes New Law for SEZ
The commerce ministry is presenting a host of direct and indirect incentives such as deferral of import duties and exemption from export taxes to revamp Special Economic Zones through new legislation, an official stated. The Centre proposed in the Union Budget 2022 to substitute the existing law governing SEZ with recent legislation enabling states to become partners in the Development of Enterprise and Service Hubs (DESH).
According to an official, the Ministry of Commerce has sought statements from various ministries on the new bill for SEZs, including finance. The Ministry would strive for the approval of the Union Cabinet after collating the feedback and then introducing the bill in Parliament.
The proposals seek to furnish incentives such as retention of zero-rating of IGST (integrated goods and services tax) on domestic procurement by a department in an SEZ; continuation of indirect tax benefits to developers of these zones; and allowing depreciation on sale of used capital goods cleared to domestic tariff zones.
There is also a strategy to expand the corporate tax rate to 15 percent without any exemptions for units undertaking authorized operations in these development hubs. States can also deliver support measures to these zones to boost manufacturing and job creation.
Presently, SEZs are treated as foreign entities in terms of customs. The industry has repeatedly demanded continuing tax benefits delivered under the current law. SEZ units utilized 100% income tax exemption for the first five years on export income, 50% for the next five years and 50% of the pressed back export profit for the next five years.
In the Budget 2016-17, the government informed that the income tax benefits to new SEZ units would be unrestricted to only those units which commence activity before 31 March 2020. As on 30 June 2022, the government has allocated formal approvals to 425 SEZ developers, out of which 268 are operational. These zones have enticed about Rs 6.5 lakh crore investments and utilize about 27 lakh persons. During April-June this fiscal, exports from these zones increased by 32 percent to about Rs 2.9 lakh crore. It was around Rs 10 lakh crore in 2021-22 as corresponded to Rs 7.6 lakh crore in 2020-21.
What are Special Economic Zones?
The Special Economic Zone (SEZ) policy in India first arrived at its inception on April 1, 2000. The prime purpose was to improve foreign investment and provide an internationally competitive and hassle-free environment for exports. The idea was to promote exports from the country and realize the condition that a level playing field must be made obtainable to the domestic enterprises and manufacturers to be competitive globally.
An SEZ Policy was announced for the very first time in 2000 to overcome the barriers businesses confronted.
- There were numerous controls and many clearances to be obtained before starting a venture.
- Infrastructure facilities were shoddy and sufficiently below world standards in India.
- The fiscal regime was inconsistent as well.
- To attract huge foreign investments into the country, the government declared the Policy.
- The Parliament passed the Special Economic Zones Act in 2005 after numerous consultations and deliberations.
- The Act arrived into force along with the SEZ Rules in 2006.
- However, SEZs were operating in India from 2000 to 2006 (under the Foreign Trade Policy).
Legislation has been decreed permitting SEZs to offer tax breaks to foreign investors. Over half a decade has passed since its inception, but the SEZ Bill has particular drawbacks due to the omission of key provisions that would have relaxed rigid labor rules. This has lessened India's chance of emulating the victory of the Chinese SEZ model, through foreign direct investment (FDI) in export-oriented manufacturing.
Special Economic Zone (SEZ) is a particularly delineated duty-free enclave and shall be considered to be foreign territory for trade operations and duties and tariffs. In order words, SEZ is a geographical region that has economic laws various from a country's typical economic laws. Usually, the goal is to boost foreign investments. SEZs have been established in several countries, including China, India, Jordan, Poland, Kazakhstan, the Philippines, etc.
Types of Special Economic Zones
Special economic zones contain Free trade zones (FTZ), Export processing zones (EPZ), Industrial parks or industrial estates, free economic zones (FZ/ FEZ), Free ports, Bonded logistics parks (BLP), and Urban enterprise zones. Noted below are the various types of special economic zones.
Sector-Specific SEZ: Involved in manufacturing one or more goods in a distinct sector like electronic goods (land used 10 or more hectares), or one or more services (land used 100 or more hectares).
Multi-product SEZ: Involved in manufacturing multiple goods or furnishing numerous services in a specific sector or across different sectors. (land used 1000 or more hectares).
SEZ in the airport; or for free trade and warehousing: Concerned in manufacturing of goods in two or more sectors, entailing trading and warehousing (land used 40 or more hectares).
Benefits of Special Economic Zones
Special Economic Zones (SEZs) are set up to encourage rapid economic growth in the country. The main intent contains promoting exports of goods and services and encouraging investment from domestic and foreign sources. Infrastructure development and the creation of employment prospects are among the important benefits of special economic zones.
Among the main benefits of investing in SEZs in India contains tax incentives for businesses and entities operating in the region and improved infrastructure. It encourages the growth of foreign exchange earnings through exports of new employment opportunities.
Where are SEZs located in India?
Currently, there are eight functional SEZs located at Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta (West Bengal), and Noida (Uttar Pradesh) in India. Further, an SEZ in Indore (Madhya Pradesh) is now prepared for operation.
In addition, 18 approvals have been provided for the setting up of SEZs at Positra (Gujarat), Navi Mumbai and Kopata (Maharashtra), Nanguneri (Tamil Nadu), Kulpi and Salt Lake (West Bengal), Paradeep and Gopalpur (Orissa), Bhadohi, Kanpur, Moradabad and Greater Noida (UP), Vishakhapatnam and Kakinada (Andhra Pradesh), Vallarpadam/Puthuvypeen (Kerala), Hassan (Karnataka), Jaipur and Jodhpur ( Rajasthan) based on proposals obtained from the state governments.
Role of state governments in establishing SEZs
State governments will have a very significant role to play in the establishment of SEZs. A representative of the state government, who is a member of the inter-ministerial committee on private SEZ, is consulted while considering the proposal. Before recommending any proposals to the ministry of commerce and industry (department of commerce) the primary objectives of the SEZ Act are:
- Generation of added economic activity
- Promotion of exports of goods and services
- Promotion of investment from domestic and foreign sources
- Creation of employment options
- Expansion of infrastructure facilities
How do SEZs help a country's economy?
SEZs play a critical role in the rapid economic development of a country. In the early 1990s, it helped China and there were hopes (perhaps never very high ones, admittedly) that the establishment in India of similar export-processing zones could offer similar benefits -- furnished, however, that the zones offered attractive enough concessions. The SEZ Rules deliver for the various minimum land requirements for further classes of SEZs. Every SEZ is separated into a processing area where alone the SEZ units would come up and a non-processing area where the supporting infrastructure is to be formed. So if you want any relevant information about the import export data, eximpedia is here to assist you. Our professionals have a wide range of experience in providing the best Services. Contact firstname.lastname@example.org right away to receive structured, well-organized data.