The Indian Special Economic Zone was developed in a bid to speed up the inflow of foreign direct investment, expose the Indian producers and domestic firms to the competitive world market, as well as the endorsement of export activities from the country. The government made the announcement of their plans to set up a special economic zone for the country in April 2000.
The government expects that the SEZs would act as a foreign destination for business purposes, duties and taxes, and commercial operations. Apart from allowing the importation of raw materials and merchandise without paying tariffs, the intention of the government was also to equip the zones with a view to providing state-of-the-art infrastructure services as well as sustenance services.
Furthermore, also provided in SEZs are banking services, trouble-free custom duties, attractive financial subsidiaries, and other methods.
The control of the Indian SEZs rests on the shoulders of three-tier organizational levels, which are:
- An entity in the Board of Approval known as the Supreme Controlling body.
- A Unit Approval Committee charged with developmental issues at the District Level
- A Development Commissioner in charge of every district. The Commissioner also oversees and control the Unit Approval Committee.
In view of the relevance of SEZs, this article will take a look at its features, benefits, as well as how to set up an SEZ unit.
WHAT IS A SPECIAL ECONOMIC ZONE?
SEZs are geographical regions with liberal economic laws compared to the domestic economic laws of a country. In India, special economic zones came to being after the government made a pronouncement announcing the policy in April 2000 with a view to attracting foreign direct investments, creating state-of-the-art infrastructure for business purposes, and allowing trouble-free custom duties.
The intention of the SEZ policy is to ensure and guarantee economic growth that would be supported by cutting-edge infrastructures and technologies at all levels of government (State and Centre) with an effective regulation.
The Regulations governing the special economic zones in India is the SEZ Act 2005. The Act was promulgated into law on February 10th, 2006. Before the enactment of the SEZ Act 2005, the operations of SEZs were regulated by the Foreign Trade Policy. The two mandates of the Act is to improve the inflow of foreign direct investment, as well as guarantee a globally competitive export environment.
FEATURES OF THE INDIAN SPECIAL ECONOMIC ZONE (SEZs)-
Below are the features of the Indian SEZs:
- Unlike the special economic zones in other countries which are controlled by their government, the Indian SEZs were created by the contribution of the government, joint sector, and the private sector. Hence, this provides equal opportunity to both international prospects and Indian players.
- Allocation of over 1,000 hectares of Greenfield land by the government
- Permission of 100% FDIs, apart from those activities classified in line with an unconstructive record.
- Commodities that are taken into an SEZ from a Domestic Tariff Area are regarded as exports
- Commodities that are taken into the Domestic Tariff Area from an SEZ is recognized as imports.
SPECIAL ECONOMIC ZONE (SEZs) BENEFITS-
A special economic zone not only offers state-of-the-art infrastructure, but it also offers a viable opportunity to a pool of skilled workers, as well as an attractive ROI to both developers and companies. Let’s us take a look at other benefits inherent in a special economic zone:
- Tax exemption: A SEZ offers 100% tax exemption for a 5 years duration and another extra 2 years tax relief of 50%.
- Foreign direct investments in the manufacturing industry are allowed 100% influx through an automatic channel.
- Establishment of off-shore banking services
- Exemption of Central sales tax and Service tax
- Foreign borrowings to the tune of USD$500 million is permitted within a year through an approved banking network
- Players do not need the authorization to carry out import
- 100% FDI in the areas of customary telephone facilities.
- No custom tariff when buying raw products, merchandise, as well as spare parts.
- No routine inspection by men and officers of the Indian customs for import and export freight
- State tax exemption
- No levy would be imposed by State Governments
- Approvals at both the state and central is a single window.
HOW TO SET UP A UNIT IN A SPECIAL ECONOMIC ZONE?
Before an applicant file an application for a unit in an Indian SEZ, he/she should be abreast with the required documentation and projections for establishing a unit, in addition to consulting an SEZ developer for proper guidance. The following are the procedures or process to set up a unit in a special economic zone:
- The applicant shall visit the SEZ website via https://www.sezonline-ndml.com/index.htm, enter his/her valid information and obtain a username and password. The applicant should not share his/her password to a third party.
- As stipulated by the Special Economic Zone’s rule, an applicant will submit his/her application to the office of the Development commissioner using Form F.
- After completing the Form F, the applicant will submit same online capturing the following details:
- Information about the applicant’s industrial undertaking or promoter like name, PAN, and IEC, among others.
- Applicant contact address
- Bank details
- Intended activities in SEZ such as industry type, provision of services, and manufacturing of goods, among others
- Details of applicant’s demand draft of 5 lakhs paid into the concern SEZ’s account
- Partners or Directors or Proprietor’s information like contact details, name, and address
- Investment details for the proposed business
- Details of infrastructure such as office area, employment details, warehouse, factory space, and effluent treatment.
- Applicant’s capital requirements like foreign capital or equity debt
- 5 years projected Foreign exchange earnings
- Other details which the applicant want to avail in his/her application
- After providing the above information, the applicant will submit the online form. The applicant will also make 5 copies of the annexures and application and then submit the same to the office of the Development Commissioner. The annexures include the following;
- A detail and clear report of the proposed project capturing manpower requirement, financial requirements, and marketing letter
- How to control pollution
- An affidavit supporting that the information provided is original
- Certificate from a bank as evidence of opening a separate account
- Relevant attachments like a certificate of incorporation or deed of partnership
- The office of the Development commissioner on receiving the applicant’s application will verify the authenticity of all the documents submitted both online and the ones submitted via hard copies.
- Depending on the decision of the Approval Committee (either acceptable, rejection or approval requiring modification), the Development commissioner’s office will update the applicant’s status online on the SEZ portal.
- If the applicant’s application is approved but requiring modification, the DC’s office will make such a remark on the applicant’s status.
- When process the applicant’s proposal, if the DC’s office discovers any discrepancy in the submitted documents, the DC’s office will return the application with a remark on what should be done to correct the discrepancy.
- The applicant on receiving the returned application shall correct all anomalies and then re-submit the application for another consideration.
- If required, the applicant might have to appear physically to explain while an approval letter should be issued to him/her
- After considering the applicant’s proposal based on merit and with regards to the viability of the applicant’s projects towards the earning of foreign exchange and compliance with laid down laws, the DC’s will then approve the applicant’s application and then convey the approval letter via email to the applicant
ACTIVITIES UNDERTAKING BY AN APPROVED UNIT IN A SPECIAL ECONOMIC ZONE
After the applicant’s application has been approved by the DC’s office, the applicant would log in to his/her dash on the SEZ portal. After the confirming the approval, the applicant will immediately make payment of Rs. 35,000 on the SEZ portal. The amount includes the following;
- Rs. 2,500 for a one-time registration charge
- Rs. 10,000 for the annual usage charge
- The user based on his/her discretion may deposit funds on the SEZ portal to always take care if his/her unit’s annual usage charges
- After payment, the user will be able to view his/her approval letter and will accept the letter by signing digitally on the portal within 45 days.
- After accepting the LOA, a lease agreement letter shall be signed with the SEZ developers and then submit the same online to the DC’s office. A copy of the lease deed shall also be submitted physically to the DC’s office.
- The user will furnish the DC’s office with the date of commencement of operation via the online portal. The DC’s office may also require that the date of commencement of operation should be submitted physically with supporting documents.