The government has proposed to replace the existing law governing Special Economic Zones (SEZs) with new legislation to enable States to become partners in ‘Development of Enterprise and Service Hubs’.

Why amend SEZ Act, 2005?

• Units in SEZs used to enjoy 100% income tax exemption on export income for the first five years, 50% for the next five years, and 50% of the ploughed back export profit for another five years.
• SEZs now have started losing their sheen after the imposition of minimum alternate tax and the introduction of a sunset clause for the removal of tax incentives.
• The new act will cover all large existing and new industrial enclaves to optimally utilize the available infrastructure and enhance the competitiveness of exports.
• The government will also undertake reforms in customs administration of SEZs with a view to promote ease of doing business.

What are SEZs?

• A Special Economic Zone (SEZ) is an area in which the business and trade laws are different from the rest of the country.
• SEZs are located within a country’s national borders, and their aims include increasing trade balance, employment, increased investment, job creation, and effective administration.
• To encourage businesses to set up in the zone, financial policies are introduced.
• These policies typically encompass investing, taxation, trading, quotas, customs, and labor regulations.
• Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.

SEZs in India

• The SEZ policy in India first came into inception on April 1, 2000.
• The prime objective was to enhance foreign investment and provide an internationally competitive and hassle-free environment for exports.
• The idea was to promote exports from the country and realize the need for a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally.
• Subsequently, the SEZ Act 2005, was enacted to provide the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.

Who can set up SEZs? Can foreign companies set up SEZs?

• Any private/public/joint sector or state government or its agencies can set up an SEZ.
• Yes, a foreign agency can set up SEZs in India.

What is the role of state governments in establishing SEZs?

• A representative of the state government, who is a member of the inter-ministerial committee on private SEZ, is consulted while considering the proposal.
• Before recommending any proposals to the ministry of commerce and industry (department of commerce), the states must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc.

Are SEZs controlled by the government?

• In all SEZs, the statutory functions are controlled by the government.
• The government also controls the operation and maintenance function in the central government-controlled SEZs. The rest of the operations and maintenance are privatized.

Are SEZs exempt from labor laws?

• Normal labor laws are applicable to SEZs, which are enforced by the respective state governments.
• The state governments have been requested to simplify the procedures/returns and for the introduction of a single-window clearance mechanism by delegating appropriate powers to development commissioners of SEZs.

Who monitors the functioning of the units in SEZ?

• The performance of the SEZ units is monitored by a unit approval committee consisting of a development commissioner, custom, and representative of the state government on an annual basis.

What are the special features for business units that come to the zone?

• Business units that set up establishments in an SEZ would be entitled to a package of incentives and a simplified operating environment.
• Besides, no license is required for imports, including second-hand machinery.

How do SEZs help a country’s economy?

• SEZs play a key role in the rapid economic development of a country.
• In the early 1990s, it helped China and there were hopes that the establishment in India of similar export-processing zones could offer similar benefits – provided, however, that the zones offered attractive enough concessions.
• Traditionally the biggest deterrents to foreign investment in India have been high tariffs and taxes, red-tapism, and strict labor laws.
• To date, these restrictions have ensured that India has been unable to compete with China’s massively successful light-industrial export machine.

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