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Special Economic Zone September 21, 2014

SEZ Bangalore

Special Economic Zone – SEZ – (Bangalore) is a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs in India. 

 

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LAW & ADMINISTRATION
  • Legislation : Special Economic Zones Act, 2005
  • Rules : Special Economic Zones  Rules, 2006
  • Management : Ministry of Commerce and  Industry
  • APEX Authority : Board of Approvals New Delhi
  • Implementation : Zonal Development Commissioners
  • Administration : ADC, VSEZ
  • Primary Contacts : Developer of SEZ
  • Sector : IT/ITES

OBJECTIVES

  • 1.   Generation of Additional Economic Activity
  • 2.   Development of Industrial and Social Infrastructure
  • 3.   Creation of Employment Opportunities
  • 4.   Promotion of domestic and foreign sources
  • 5.   Promotion of Exports and goods

FEATURES

  • 1.   Simplification of procedures
  • 2.   Single Window Clearance (not yet implemented)
  • 3.   Simplified Compliance
  • 4.   Enhanced Self Certification (not implemented to the full extent)
  • 5.   Direct and Indirect Tax Concessions for Units

OVERVIEW

  • 1.   Full freedom to sub contract
  • 2.   Duty free goods to be utilized in 5 years
  • 3.   No time restriction on export proceeds realizations
  • 4.   Flexibility to write off un realized export bills subject to fulfillment of NFE
  • 5.   No routine examination by customs authorities
  • 6.   SEZ import cargo given utmost priority
  • 7.   In house customs clearance
  • 8.   Domestic sales permitted subject to payment of applicable taxes
  • 9.   Allotment of Equity against import of Capital Goods permitted
  • 10.General permission for external commercial borrowings without any maturity restrictions

COST BENEFITS

Cost/Benefit
Analysis
High Quality Infrastructure for Units Available based on the Developer.Not all SEZ’s can be compared with each other
Procedural Night Mares Without State SEZ policy in place all procedures shall be carried out
Single Window Clearance Not in place as of now. Single Window Policy not effectively implemented. State SEZ Policy is not yet approved by Parliament
Cost Industry Experience shows that the Infra, Maintenance and other costs tend to be more than in the CBD.
Input costs With respect to Customs and Central Excise Duty the input costs are definitely reduced. Service Tax ambiguities on allowing exemption and refund have to be put to bed without which exemption from ST and refund of the same becomes vexatious and litigant.

INCENTIVES- INCOME TAX

Cost/Benefit
Analysis
INCOME TAX Units which commence operations on or before March 31, 2012 are eligible for Income Tax benefits according to DTC.IT Benefits till DTC is implemented are as follows:For the First 5 Years >100% of Eligible profits and gainsNext 5 years  >50% of Eligible profits and gainsNext 5 years  >50% of Eligible profits and gainsSubject to investing profits in P&M

instead of distributing dividends.
MAT Payable @ 20.00775%
MAT Credit Eligible for 10 years
DividendDistribution Tax Not Applicable for distribution of Dividends declared out ofthe profits and gains from SEZ Operations
Input costs With respect to Customs and Central Excise Duty the inputcosts are definitely reduced. Service Tax ambiguities onallowing exemption and refund have to be put to bed without which exemption from ST and refund of the same becomes vexatious and litigant

INCENTIVES- OTHER TAXES

Cost/Benefit
Analysis
Central Excise Duty A No Tax on purchases of Capital Goods and P&M
Customs duty No Customs Duty on purchases of Capital Goods and P&M
Service Tax No Service Tax on Services Consumed WHOLLY within the SEZService Tax on Services Consumed PARTIALLY in the SEZ are liable to Service Tax and the Unit shall apply for a Refund under Export of Services Rules 2005
VAT and CST CST Exempted against Form IAnomaly in terms of applicability of VAT (Intra State Purchases) yet to be clarified.
Capital Gains Exemption on transfer of Specified Assets in consequence to shifting of industrial undertaking from Urban or other areas to a SEZ subject to Conditions

 

ISSUES AND CHALLENGES

Cost/Benefit
Analysis
Transfer of business from STP to SEZ 20% of the total investment in SEZ can be old or used Plant and Machinery. Plant and Machinery is that equipment which has a Direct Nexus to IT/ITES Export.Operations should not be assisted with the old or used P&M. this means the Unit shall first purchase and install New P&M in the SEZ up to an extent of 80% and then bring.
Restrictions on Transfer of Employees etc Issues such as Splitting or reconstruction of existing business to start a NEW SEZ Unit may be presumed which pose potential tax litigation at a later time
Sharing Ambiguity or anomaly in sharing resources between SEZ and Non SEZ units still exist
Common Costs Anomaly in treatment of common costs between SEZ and Non SEZ Units still exist
Documentation Documentation for Supporting Claim for tax holiday under SEZ Scheme yet to be clarified

We have on offer Warmshell and Plug & Play office space in IT/ITes SEZ’s for Lease/Rent .                   For specific requirement in terms of Size/Location and budget preferences, please write to contact@goco.in and a specific listing will be sent to you as per your requirement.

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