SEZ

Special Economic Zone (SEZ)

A geographical region that has economic laws
that are more liberal than a country's typical
economic
laws.
1947 1st SEZ in USA

FEATURES
Duty-free imports of capital goods and inputs for production for
Export

Liberal access to foreign exchange

Encouragement to FDI
Simplified, one-stop approvals
Generous tax concessions esp. in early years
Flexible Labour Laws
Limitations on sales within the country
Better Infrastructure (Power, Transport & Communications)

Category 'SEZ' covers

Free Trade Zones (FTZ)
Export Processing Zones (EPZ)
Free Zones (FZ)
Industrial Estates (IE)
Free Ports
Urban Enterprise Zones and others

INDIA
Asias 1st Export Processing Zone (EPZ) was set up in Kandla
(Gujarat) in 1965.

In 1990s, as a part of reforms, powers delegated to zone

authorities

New Policy in April 2000

Special Economic Zones Act 2005
Full law and implementing rules effected February 2006

FACILITIES NOTIFIED
No license required for import
Single window approval by Development Commissioner of
the zone

No license needed to manufacture items reserved for SSI sector

100% FDI allowed in manufacturing through automatic route
except in sectors such as defense, atomic energy

External commercial borrowings by units allowed without any

maturity restrictions

Freedom to bring in export proceeds without any time limit

Foreign cos permitted to set up branches for manufacturing
activities

 Exemption to sales made from Domestic Tariff Area

Duty free import or domestic procurement of goods
for development, operation and maintenance
100% IT exemption (10A) for first 5 years
50% for 2 years & 50% of reinvestment for 3 years
Offshore Banking Units allowed to have full IT
exemption for 3 years and 50% for next two years
Exemption from Service Tax
Permitted facilities like golf courses, de-salination
plants, hotels and non-polluting service industries in
the Coastal Regulation Zone area

 Total land in lndia=2973190 sq. Km

Total agricultural land=1620388 sq. km.
Sez formally approved (234)=350 sq km
Sez in principal approval (162)=1400 sq km
Total area proposed for sez= 1750 sq km.
Which is merely 0.047% of the total land and
0.086% of the total agricultural land.

All 8 EPZs converted into SEZs

Kandla ( Gujarat)
Seepz( Maharashtra)
Noida (U P)
Madras ( T N)
Cochin ( Kerala )
Falta ( W B)
Visakhapatnam( AP)
Surat ( Gujarat )

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1965 (625 Acres)

1975 (110 Acres)
1986 (310 Acres)
1986 (262 Acres)
1986 (103 Acres)
1986 (280 Acres)
1994 (360 Acres)
1998 (103 Acres)

Present & Future

Current investment & employment 07- 08
Investment:
Employment:

Rs. 67088 crores

2.8 Lakh People

Expected investment and employment by

Dec 09
Investment:
Employment:

Rs. 125000 crores

17,43,530 additional jobs

China
Started soon after beginning of reforms in
1978.
Policy of preferred regions unequal growth
open-door policies
Overriding approach based on Dengs
Observation

Reasons for Success

Unique locations
Large size & local authorities with foreign collaboration
Investment-friendly towards Non-Resident Chinese and
Taiwanese
Attractive incentive packages for foreign investment
Liberal customs procedures

FACILITIES NOTIFIED
Corporate Income Tax rate is 33% (Central +
Provincial)
Tax incentives and holiday rates are not
applicable to service and domestic distribution
income
Value Added Tax (VAT), Business Tax etc.
often apply
Transfer pricing has become an emerging issue

 Tax incentives and holidays

Manufacturing tax incentives
High technology incentives
Special Economic Zone incentives, e.g.
Shanghai 24%, Pudong 15%
Guangzhou 24%, Shenzhen 15%

 Shenzhen
Xiamen
Shantou
Zhuhai
Hainan

INDIA vs CHINA

Issue
Size
Location

Labour laws

China
Typically in hundreds of
hectares.
located only on coasts.

Relaxed

India
Even 10 hectares will do
Anywhere. No restriction

Flexibility is totally absent

Policy regime

Experimentation of liberal
policies in the specified areas

Investors

Basically foreigners who are

wooed with sops and promise
of stability in policy.

Basically locals. Not foreign investor

driven

Commencement

In 1979

In 1969 with the export processing

zone concept,but failed

Number

Only six: Shenzhen, Zhuhai,

Shantou, Xiamen, Hainan and
Pudong

So far 28 operational. About 200

received approvals

Tax holidays

Present

Based on fiscal sops

Longer and steeper than in China

 Shenzhen is the largest SEZ in China and is

spread over 493 Sq Kms.(49,300 hectares).
While the largest SEZ in India, Reliance - Navi
Mumbai and Maha Mumbai SEZ, is mere
14,000 hectares