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India: Special Economic Zones
December 2005 | India Practice | Regional | Regional Reports
LAU Kiat Wee
Introduction
The policy for the setting up of Special Economic Zones ("SEZs") in India has undergone various refinements and modifications since its introduction around 2000. In a bid to further attract foreign investment, the Indian Parliament has taken another mammoth step towards liberalisation by enacting the much-awaited Special Economic Zones Act 2005 (the "SEZA"). SEZs refer to those areas which offer a host of exemptions to investors in order to attract their investment. However, there often remain various procedural difficulties from the investor"s point of view with regard to making such investment.
Salient Features
The Indian Parliament has made a commendable attempt to iron out such difficulties with the enactment of the SEZA, which provides for measures simplifying and expediting the relevant procedures. Salient features of the SEZA are as follows:
- recognition of existing SEZs and setting out of lucid procedures for the formation of more SEZs;
- establishment of a Free Trade and Warehousing Zone (where mainly trading and warehousing and other incidental activities are carried out) and an International Financial Services Centre;
- special provisions for offshore banking units (such units being branches of banks to be located within the SEZs);
- exemption from taxes, duties and cesses which may otherwise be levied under 21 statutes listed in the First Schedule to the SEZA;
- relaxation of income tax;
- exemption from customs duty;
- exemption from excise duties under the Central Excise enactments;
- eligibility for duty drawback benefits;
- exemption from service tax;
- exemption from securities transaction tax;
- exemption from levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956;
- Single Window Clearance;
- single enforcement officer or agency for notified offences;
- designation of special courts to try suits and notified offences in relation to the SEZs;
- every person, whether employed, residing or required to be present in the SEZs to be provided with an identity card by the Central Government; and
- SEZs shall be deemed to be outside the customs territory of India and shall each be deemed to be a port, inland container depot, land station and land customs station for the purposes of the Customs Act, 1962.
Conclusion
Even though the SEZ concept is not new to India, its current form offers immense scope for attracting foreign direct investments and increasing economic growth. SEZs with public and private partnerships may now be created which will create a trouble-free and internationally competitive environment. This is only the beginning of what could be a virtuous cycle where both the government and private companies will continue setting up SEZs in various parts of the country, thereby spurring even greater economic growth and development.
