Special economic zones (SEZs)

Introduction: SEZ is a geographically bound zone where the economic laws in matters related to export and import are more liberal than rest of the country. SEZs are projected as duty free area for the purpose of trade, operations, duty and tariffs. SEZ units are self-contained and integrated having their own infrastructure and support services. Units may be set-up for the manufacture of goods and other activities including processing, assembling, trading, repairing, reconditioning, making of gold/silver, platinum jewellery etc. SEZ units are deemed to be outside the customs territory of India. Since the SEZ policy was announced in 2000, 576 formal approvals have been granted for setting up of such enclaves, out of which 392 SEZs have been notified. Only 170 are operational SEZs were supposed to be areas where government provides state-of-the-art technology and infrastructure facility. However, later they were left to private developers Unlike china which developed infrastructure, India opted to license a large number of SEZs without ensuring proper infrastructure outside the zones.

Features: It is an export processing zone. SEZ Act was enacted in 2005, and was passed by Parliament in May 2005. It provides a comprehensive policy framework to satisfy the requirements of all principal stakeholders in an SEZ the developer and operator, occupant enterprise, out zone supplier and residents. Previously the policy relating to the EPZs/ SEZs was in Foreign Trade Policy while incentives and other facilities were implemented through various notifications and circulars issued by the concerned ministries/departments which were not able to deliver confidence in investors. It provides expeditious and single window clearance mechanisms. It is a tax haven for exporters

Working: The SEZ Act 2005 is mainly divided into 7 different chapters and 3 schedules. Board of approval constituted by the central government promotes and ensures orderly development of SEZs

Central government may set up a zone, proposals of the state governments and private developers are to be screened and approved by the board. At the zone level, approval committees are constituted to approve/reject/modify proposals for setting up SEZ units. Development Commissioner (DC) and his/her office are responsible for exercising administrative control over a zone.

SEZ act deals with following: Establishment of the SEZ and the various authorities constituted in this connection. Appointment of the Developer, Co-developers and approval for units to be located in the notified area. Exemptions, drawbacks and concessions including exemptions from customs duty (on goods brought into or exported from the SEZ), excise, service tax, securities transaction tax, sales tax and income tax. Offshore Banking Unit & International Financial Services Centre. Setting up of offshore banking units / International Financial Services Centre in SEZs. Notified Offences & Civil Suits. A single enforcement agency/officer for certain notified offences as well as the designation of courts by the state governments for such offences committed in and for civil suits arising in SEZs.

Role of State Government in Establishment of SEZ Units: Proposal for setting up of SEZ unit in the Private / Joint / State Sector is routed through the concerned State government who in turn forwards the same to the Department of Commerce with its recommendations for consideration. States Government properly checks all the necessary inputs such as water, electricity, etc required for the establishment of SEZ units.

Incentives offered: Exemption from custom duties, central excise duties, service tax, central sales taxes and securities transaction tax to both the developers and the units;

Tax holidays for 15 years (currently the units enjoy a seven year tax holiday), i e, 100 per cent tax exemption for 5 years, 50 per cent for the next five years, and 50 per cent of the ploughed back export profits for the next five years1; and 100 per cent income tax exemption for 10 years in a block period of 15 years for SEZ developers.

Problems/hurdles: The Central Government treated domestic supplies as imports into India and applicable customs duties were levied. SEZs would have to pay full duty if they sell goods in the DTA (or domestic market), SAD exemption is only available to domestic supplies in the nature of stock transfers. Free Trade Agreements entered by India with various countries, allowing domestic importers to import goods from these countries at concessional duties vis--vis the standard duties applicable on procurements from SEZ Land acquisition problems as farmers unwilling to give their land. No full approval before 90% land acquisition Imposition of minimum alternate tax (MAT), dividend distribution tax (DDT) in 2011 and certain provisions in the proposed direct tax code (DTC) regime as well as global demand slowdown Protests, some time wild protests by farmers. And also Land mafia are using the SEZs to carve up huge chunks of overpriced real estate. Many countries impose countervailing duties to negate direct tax subsidies, which reduces the competitiveness of exports from such enclaves. So far, 33 countervailing duty measures have been slapped on against India, second only behind China (42). 75 per cent of the area in an SEZ comes under the non-processing category and is freely available for developers. As a result, several multi-product SEZs have come up with proposals to develop complete townships adjoining the major cities with residential and recreational areas with facilities like entertainment complexes, multiplexes, golf courses, educational institutions, hospitals and so on. CBEC had estimated an overall revenue loss of Rs 3,50,000 crores involved in the creation of all SEZs since 2006.

SEZ controversies: Agricultural land is a very sensitive issue in India and the introduction of SEZ in India has resulted in the dispossession of agricultural land and has affected the livelihood of farmer at large. At first farmers protested to safeguard their interests through litigation

and court cases challenging the establishment of SEZs. But later on, the resistance against SEZ in India became massive when political parties also joined the farmers.

1) Jamnagar Incidence: In November 2006, farmers of Jamnagar in Gujarat moved to Supreme Court to challenge setting-up of a 10,000-acre (approx. 4,000-ha) SEZ by Reliance Infrastructure. They claimed that the acquisition of large tracts of agricultural land in the villages of the district violated the Land Acquisition Act of 1894, but was also in breach of the public interest. 2) Nandi gram Violence: In 2007 the West Bengal government decided to allow Salim Group to set up a chemical hub at Nandi gram under the SEZ policy. Farmers of that village were against it. So, on the order of the Left Front government on 14 March, 2007, more than 3,000 heavily armed police stormed the Nandi gram area. The main objective was to remove the protestors in order to expropriate 10,000 acres of land for a Special Economic Zone (SEZ) to be developed by the Indonesian-based Salim Group. During this incidence, police shot dead at least 14 villagers and wounded 70 more including children and women.

Protests made the Government to consider putting a ceiling on the maximum land area that can be acquired for multi-product zones and decide to go slow in approving SEZs. No doubts that these commercial hubs started with a lot of premature praise and have now became a bone of contention which is readily exploited by the political forces to the detriment of the peasants, who fear losing their means of livelihood. Latest developments:

Proposing a tax structure under which the duty forgone towards sale of products in domestic tariff area (DTA) could be recovered once the situation improves. The compensation for land acquired has been enhanced by four times in rural areas and two times in urban areas. CBEC has recommended that the SEZ Act should make it mandatory to earmark at least 75 per cent of the area in an SEZ for import and export processing.

Bibliography: 1http://www.eximguru.com/exim/special_economic_zone_sez/ch_7_sez_act_2005.as px http://www.eximguru.com/exim/special_economic_zone_sez/ch_11_sez_controversy. aspx

http://www.livemint.com/Politics/pZ1V1BKitKNV1tzWqIIShL/Study-lists-whyIndias-special-economic-zones-policy-didnt.html http://www.zcommunications.org/india-s-special-economic-zones-by-sriramananthanarayanan.html http://ieport.blogspot.com/2010/01/sez-act-needs-overhaul-cbec.html http://ieport.blogspot.com/2010/01/ministry-proposes-changes-in-sez-rules.html

Address: Anurag Ramkumar Mishra