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Information about SEZ PPT BY GUPTA

Published on February 6, 2009

Author: tsp.gupta


Slide 1:  Slide 7: HITEC City – Developed by L&T website : : ©Rajkumar S. Adukia 8 website : : ©Rajkumar S. Adukia 9 Slide 10: ©Rajkumar S. Adukia 10 Definition What is an SEZ? : What is an SEZ? “….it is a specifically delineated duty-free enclave and shall deemed to be a foreign territory for the purposes of trade operations and duties and tariffs” The purpose - “... to provide an internationally competitive and hassle-free environment for exports” what is special? : what is special? duty-free! exemption from taxes, various subsidies and tax sops hassle-free! exemption from stringent labour and environment regulations foreign enclave! single window clearance! BOA_& APPROVAL COMMITTE land acquisition upto 1000 ha Only 25% of the area for industrial activity – the rest of the area for entertainment and residential as well as other commercial activities! SEZ – A favoured destination : SEZ – A favoured destination Preferential Policy Framework Hassle Free Operating Environment Integrated Infrastructure Fiscal incentives & regulatory benefits Thrust on self-certification & in-zone empowerment Self-contained & Self-managed SEZ India provides boldest policy framework in 55 years Histroy of Special Economic Zones SEZ. : Histroy of Special Economic Zones SEZ. First known SEZ- Puerto Rico-1947 Ireland & Taiwan followed-1960’s China made the SEZ’s global currency with its largest SEZ- Shenzen 1980 revolution came in 2000- incorporation of SEZ in Exim policy. 5 years later- SEZ Act(2005) introduced History : ©Rajkumar S. Adukia 15 History All 8 EPZs converted into SEZs :- Kandla ( Gujarat) : 1965 (625 Acres) Seepz( Maharashtra) : 1975 (110 Acres) Noida (U P) : 1986 (310 Acres) Madras ( T N) : 1986 (262 Acres) Cochin ( Kerala ) : 1986 (103 Acres) Falta ( W B) : 1986 (280 Acres) Visakhapatnam( AP) : 1994 (360 Acres) Surat ( Gujarat ) : 1998 (103 Acres) Special Exconomic Zones Terms And Conditions. : Special Exconomic Zones Terms And Conditions. Only units approved under SEZ scheme would be permitted to be located in SEZ. Shall abide by local laws, rules, regulations . Fulfill all the requirements applicable to such SEZ. Minimum area of 1000 hectares and at least 35 % of the area is to be developing industrial area. Wherever the SEZs are landlocked, an Inland Container Depot (ICD) will be an integral part of SEZs. Advantages : Advantages 15 year corporate tax holiday on export profit. Allowed to carry forward losses. No licence required for import made under SEZ units. Duty free import of goods for setting up of the SEZ units Exemption from payment of Service Tax. Setting up Off-shore Banking Units (OBU) allowed in SEZs. External Commercial Borrowings up to $ 500 million a year allowed without any maturity restrictions. Disadvantages : Disadvantages Revenue losses because of the various tax exemptions and incentives. Acquire land at cheap rates and create a land bank . this project may not match up to expectations. Laws applicable to SEZ : ©Rajkumar S. Adukia 19 Laws applicable to SEZ Administrative Set up for SEZ : Administrative Set up for SEZ The functioning of SEZs is governed by a three-tier administrative set-up Board of Approval Unit Approval Committee Development Commissioner Special Exconomic Zones SEZ Act 2005. : Special Exconomic Zones SEZ Act 2005. The policy relating to SEZs was earlier contained in Foreign Trade Policy. In 2005, a comprehensive Special Economic Zones Act 2005 was passed by Parliament in May 2005.. Investment of the order of Rs 100,000 crore over the next three years with an employment potential of over 500,000 was also expected from the new SEZs Special Economic Zones SEZ Incentives. : Special Economic Zones SEZ Incentives. Income Tax Foreign Direct Investments Off-Shore Banking Units (OBUs) Banking / External Commercial Borrowings (ECBs) Service Tax Sales to DTA Exemptions in Matters Related to Environment Company Act Drugs and Cosmetics Labour Laws Costs : Costs Quantifiable: 1. SEZ development cost : Not incurred by the government 2. Revenue loss (Tax and other investment incentives) 3. Operational costs Other welfare costs : Non quantifiable Resource transfer from the domestic sector to SEZs with no net addition to economic activities ( relocation and substitution effect) Land Acquisition without adequate compensation Impoverishment of farmers Loss of agricultural land Misuse of land for real estate Regional disparities Unequal treatment Benefits : Benefits Direct Indirect Foreign exchange Employment generation Employment for Females Skill Upgradation FDI Tech. transfers and creation Indirect employment Investment Skill spillovers Technology spillovers 1. Ind. growth 2. Productive Diversification 3. Human development 4. Revenue generation for govt. Quantifiable : static :Foreign Ex earnings, Net value addition, I, employ, Dynamic : Income generation Non quantifiable : other direct and indirect effects Net benefits : Net benefits NNB = (EXP+DTA+TAXGAIN)-IMP-RM-ELEC-ADMIN-TAX LOSS Where NNB: Net benefits from SEZs EXP : foreign exchange earnings and DTA : Domestic Tariff area Sales TAXGAIN: Taxes collected on DTA sales EXP+DTA+TAXGAIN: Total benefits IMP : imports ELEC : the cost of public utilities (electricity, power and fuel) RM : the cost of locally purchased inputs TAX Direct and indirect ( only for SEZ developers) tax foregone ADMIN: Administrative costs IMP+ELEC+RM+TAX+ADMIN : total cost Recent patterns : Recent patterns Formal approvals : 234 as on May 1, 2007 AP : 45, Maharashtra : 47, Tamilnadu : 25, Karnataka : 29, Haryana and Gujrat : 19 each, Kerala 10, UP 8. WB: 7,MP : 4 IT : 133, Electronic HW and SW : 16; 10 multi products; 12 Pharmaceuticals, 9 bio tech, over 11 textile In principle approvals : 164 Notified as on 1st May 2007: 100 High tech industries that have come up due to SEZs: Electronics Manufacturing Services, Semiconductor, Aerospace, Other industries benefited : Biotech, Pharmaceutical, automobile, textile. SEZ Act provides a major thrust : SEZ Act provides a major thrust 1. A well balanced package of incentives, infrastructure, governance is offered. Should tax incentives be offered: The most important ingredient in any SEZ policy is :Tax incentives Four reasons: Export obligations, attachment with GVC, no location choice. Second most important factor: good governance : custom rules and single window clearance. Third: infrastructure : within zones: electricity and water; outside zones: transport, roads, ports and airports Fourth : location. If good external infrastructure, this is not important. The argument that they should be set up only near the ports is not sustainable. Tax losses and benefits generated as proportion of incremental investment : Tax losses and benefits generated as proportion of incremental investment Net benefits if no additional investment after 2009 : Net benefits if no additional investment after 2009 Future SEZs : ©Rajkumar S. Adukia 30 Future SEZs Petroleum, Chemicals & Petrochemicals investment regions Manufacturing Investment Regions PCPIRS MIRS Special Economic Zones SEZ Controversy. : Special Economic Zones SEZ Controversy. Land, especially agricultural land is a very sensitive issue in India. There are millions of people whose livelihood depends on agricultural land. Jamnagar Incidence Nandigram Violence Conclusion : Conclusion SEZs can act as catalyst to industrial growth provided they are implemented effectively. Effective implementation of a policy that aims at giving shock to the economy requires mobilization of public opinion. People often approach such an issue initially with strong, emotionally laden feelings and opinions. It must be shaped and formed so that important decisions are taken without creating instability in the society. Four things are important : The government must slow down the process of giving approvals. This is important not only for social or political reasons but also due to economic realities. Legal institutions related to land acquisition ( including land acquisition modalities, compensation package and rehabilitation package) must be addressed. Introduce a performance based exit policy for SEZ developers Finally, the policy should be treated as transitory. QUESTIONS/ SUGGESTIONS/ COMMENTS ??? : ©Rajkumar S. Adukia 33 QUESTIONS/ SUGGESTIONS/ COMMENTS ??? Slide 34: Thank You

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