Special Economic Zones

Topics: Special Economic Zones, Free trade zone, International trade Pages: 16 (5228 words) Published: January 12, 2013
Special Economic Zones
A Special Economic Zone (SEZ) is a geographically bound area in a country that possesses special economic regulations that are different from other areas in the same country.The purpose of SEZ to encourage industrialization specially to facilitate FDI for export oriented production for the purpose of trade. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. As per Ministry of Commerce and Industry they are defined as: “Special economic zone is a specifically duty free enclave and shall be deemed to be foreign territory for the purpose of trade operations and duties and tariffs.” The Rationale of the SEZ

The SEZ is a subset within the geographical boundaries of the state. They are needed to: * Exports
* develop infrastructure
* Increase employment by adhering to the principles of free markets * Minimise distortions caused by effective administration and low or no taxes

Traditionally, SEZs are created as open markets within an economy that is dominated by any kind of distortion in trade, macro and exchange regulation and other regulatory governmental controls. SEZs are believed to create a conducive environment to promote investment and exports. And hence, many developing countries are developing the SEZs with the expectation that they will provide the engines of growth for their economies to achieve industrialization.

Inception of SEZ

The Special Economic Zones Act, 2005’ was passed on the 23rd June, 2005, in an attempt to give a framework to the implementation of SEZs in India .

India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000.

The Special Economic Zones (SEZs) Act 2005 is the culmination of a Government Policy, which was introduced as a vision to impart a globally conducive platform for a competitive structure of Indian exports. According to the policy, the units to be set up in the zones were required to be net foreign exchange earners, although devoid of any restriction as pre-determined value addition or minimum export performance requirements. Payment of full custom duty and import policy was mandatory for sales in the Domestic Tariff Area by these units, with the provision for setting up of offshore banking units in those special economic zones. After considerable success and much speculation, the Parliament passed the Special Economic Zones Bill 2005 in May 2005 and with the assent of the Honorable President of India, it became an Act on June 23rd, 2005..

Salient Features of the SEZ Act (2005)

1) Creation of SEZs and general administration:

The myth of SEZ’s being created to accelerate only exports were then proven false as it not only helped in growth but also accelerated the employment opportunities.

The objectives of the government, as stated by the Act:

* to generate additional economic activity,
* promote exports of
* goods and services,
* create employment opportunities, and
* develop
* infrastructure

A body called “Board of Approval” is created looks into applications to set up SEZs and gives approval to them if they meet the required criteria. This acts as a single-stop-shop for investors (called ‘developers’) to get the required regulatory permission to set up an SEZ.

2) Tax Exemptions, Finance and Banking

The Act specifies all those taxes and duties that the developers would be...

References: http://www.parsvnath.com/images/sezs-map.jpg
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