This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations. SEZs in India functioned from 1.11.2000 to 09.02.2006 under the provisions of the Foreign Trade Policy and fiscal incentives were made effective through the provisions of relevant statutes.

The main objectives of the SEZ Act are:

(a) Generation of additional economic activity

(b) Promotion of exports of goods and services;

(c) Promotion of investment from domestic and foreign sources;

(d) Creation of employment opportunities;

(e) Development of infrastructure facilities;

The SEZ Rules provide for: “Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting business in SEZs;

Single window clearance for setting up of an SEZ;

Single window clearance for setting up a unit in a Special Economic Zone;

Single Window clearance on matters relating to Central as well as State Governments;

Simplified compliance procedures and documentation with an emphasis on self certification

The developer submits the proposal for establishment of SEZ to the concerned State Government. The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the Board of Approval. The applicant also has the option to submit the proposal directly to the Board of Approval.

The Board of Approval has been constituted by the Central Government in exercise of the powers conferred under the SEZ Act. All the decisions are taken in the Board of Approval by consensus. The Board of Approval has 19 Members. Its constitution is as follows:

The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include:-

Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units

100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years,

50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.

Exemption from minimum alternate tax under section 115JB of the Income Tax Act.

External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.

Exemption from Central Sales Tax.

Exemption from Service Tax. Single window clearance for Central and State level approvals.

Exemption from State sales tax and other levies as extended by the respective State Governments.

The major incentives and facilities available to SEZ developers include:-

Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA.

Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act.

Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.

Exemption from dividend distribution tax under Section 115O of the Income Tax Act.

Exemption from Central Sales Tax (CST). Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).

Benefit derived from SEZs is evident from the investment, employment, exports and infrastructural developments additionally generated.The benefits derived from multiplier effect of the investments and additional economic activity in the SEZs and the employment generated thus will far outweigh the tax exemptions and the losses on account of land acquisition. Stability in fiscal concession is absolutely essential to ensure credibility of Government intensions.

Impact of the scheme

The overwhelming response to the SEZ scheme is evident from the flow of investment and creation of additional employment in the country. The SEZ scheme has generated tremendous response amongst the investors, both in India and abroad, which is evident from the list of Developers who have set up SEZs: