2nd Floor, Om Apartments, Pune
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Registration of SEZs AND STPI

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Pramodkumar R. Ladda
Company Secretary
Tel: +91-20-24570055 | Office Cell : +91- 9404923393, 8624919609, 9175395604 |
Personal Mob. : +91- 9922735476, 9595271145 | Skype id: pramodladda
Ladda Bhutada & Associates : 2nd Floor, OM Apartment, SR No. 496/B, KCC Classes Lane,
Opp. R. M. Kabara Electricals & Rale Estate, Kasba Peth, Pune – 411011 Maharashtra, India.
laddacs@gmail.com | http;//www.csladda.com
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A special economic zone (SEZ) refers to designated areas in countries that possess special economic regulations that are different from other areas in the same country. Moreover, these regulations tend to contain measures that are conducive to foreign direct investment. Conducting business in a SEZ usually means that a company will receive tax incentives and the opportunity to pay lower tariffs.

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.
SEZs are controlled by a three tier Organizational Set-up described as under:

Supreme controlling body in the Department is known as The Board of Approval At district level, The Unit Approval Committee tackles with SEZs development and other associated issues. Every district is led by a Development Commissioner, who also controls the Unit Approval Committee.

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;

It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.

The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and creation of related infrastructure. A Single Window SEZ approval mechanism has been provided through a 19 member inter-ministerial SEZ Board of Approval (BoA). The applications duly recommended by the respective State Governments/UT Administration are considered by this BoA periodically. All decisions of the Board of approvals are with consensus.

The SEZ Rules provide for different minimum land requirement for different class of SEZs. Every SEZ is divided into a processing area where alone the SEZ units would come up and the non-processing area where the supporting infrastructure is to be created.

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.
INCENTIVES AND FACILITIES OFFERED TO THE SEZS
1. The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include:-
2. Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units.
3. 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.
4. Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
5. External commercial borrowing by SEZ unit’s upto US $ 500 million in a year without any maturity restriction through recognized banking channels.
6. Exemption from Central Sales Tax.
7. Exemption from Service Tax.
8. Single window clearance for Central and State level approvals.
9. 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:-

1. Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA.
2. 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.
3. Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.
4. Exemption from dividend distribution tax under Section 115O of the Income Tax Act.
5. Exemption from Central Sales Tax (CST).
6. Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).

Export Performances

Exports from the functioning SEZs during the last three years are as under:
Year Value (INR. Crore) Growth Rate (over previous year )
2003-2004 13,854 39%
2004-2005 18,314 32%
2005-2006 22 840 25%
2006-20007 34,615 52%
2007-2008 66,638 93%
2008-2009 99,689 50%
2009-2010 2,20,711.39 121.40%

TYPES OF SEZ

1. Free trade zones(FTZ)

It is a tax free area that provides essential facilities for trading, shipping, import, and export business. By operating in such area, rules and regulation on tariffs, labour, and environment might be exempted or reduced or less controlled.

2. Export processing zones (EPZ)

Export Processing Zones (EPZs) can be summarized as a unit bearing clusters of specially designed zones of aggressive economic activity for the promotion of export. The main concept of Export Processing Zones was conceived in the early 1970s to promote the growth of the sickening export business of India. Export Processing Zones (EPZs) also encompasses pre-defined infrastructural facilities and regulations pertaining to establishment of such zones and environmental stipulations, respectively. These Export Processing Zones of India were established to help the growth of Indian export commodities, especially from the fast growing sectors. –

3. Free Zones/ free economic zones (FZ/ FEZ)

Free economic zones (FEZ) or free zones (FZ) are a class of special economic zone (SEZ) designated by the trade and commerce administrations of various countries. The term is used to designate areas in which companies are taxed very lightly or not at all to encourage economic activity. The taxation rules are determined by each country.

4. Industrial parks/ industrial estates (IE)

An industrial park (also known as industrial estate, trading estate) is an area zoned and planned for the purpose of industrial development. An industrial park can be thought of as a more “heavyweight” version of a business park or office park, which has offices and light industry, rather than heavy industry.

5. Free ports

A free port is a port or other area with relaxed jurisdiction of customs or related national regulations. Most commonly a free port is a special customs area or small customs territory with generally less strict customs regulations (or no customs duties and/or controls for transhipment). Earlier in history, some free ports like Hong Kong enjoyed political autonomy. Many international airports have free ports, though they tend to be called customs areas, customs zones, or international zones.

6. Bonded logistics parks(BLP)

A Bonded logistics park is a type of special economic zone. Trade arrangements are similar to that of a bonded warehouse but over a specific geographic area. Sometimes with international port capabilities. Goods may be stored, manipulated, or undergo manufacturing operations without payment of duty.

7. Urban enterprise zones

An Urban Enterprise Zone is an area in which policies to encourage economic growth and development are implemented. Urban Enterprise Zone policies generally offer tax concession, infrastructure incentives, and reduced regulations to attract investments and private companies into the zones.

Special Economic Zone (SEZ) and Software Technology Parks of India (STPI) are two completely different terms, it’s important to note that STPI, especially isn’t really a park with a physical existence, it’s more of a society which will be explained in more detail very soon.

Special Economic Zone (SEZ), is a geographical region that has business and trade laws different from the rest of the country, they are set within the country and aims to increase trade, investments, job creation and business administration.

The government formulate special policies to attract more and more businesses to be set up in these SEZs. The government mainly aims at increasing the FDI investments when they want these businesses to be set up there, in the SEZs. Those policies typically include investments, taxation, labour regulations, customs and trading relaxations.

As of now the Central/State Government and certain Private sectors has set up 218 SEZs all over India.

Now, coming to Software Technology Parks of India (STPI), it’s an autonomous society set up by the Ministry of Electronics and Information Technology, Government of India in 1991, to encourage, promote and boost software technology exports out of India. These parks maintain internal engineering resources to provide with consulting, training and implementation services. Services cover Network Design, System Integration, Installation, Operations and maintenance of application networks and facilities in varied areas.

Just for some more information STPI has played a seminal role in India having earned a reputation as an Information Technology superpower. As we all know how Indians and Indian software technology is considered, all the credits eventually goes to STPI.
The Government of India introduced Special Economic Zone (“SEZ”) and Software Technology Parks of India (STPI) schemes with the objective of providing internationally competitive and hassle free environment for earning foreign exchange: attracting foreign direct investment: generation of employment in India.
This document analyses the highlights and salient features of these schemes.
Special Economic Zone (SEZ) is a free trade zone approved by the Government where business and tale laws differ from the rest of the country. The SEZ scheme envisages association of private sector with the development of SEZ. The objectives of the zones include: increased trade: increased investment: lob creation and effective administration. The economic laws of a SEA are more liberal than the country’s economic Laws.
Software Technology Parks of India scheme (“STPI”) is a 100 percent export oriented scheme for the development and export of computer software, including export of professional services using communication links or physical media. This scheme focuses on one sector, i.e, Computer software. The scheme integrates the government concept of 100 percent Export Oriented Units (EOUs) and Export Processing Zones (EPZs) and the concept of Science Park/ Technology Parks, as operating elsewhere in the world.
Highlights of STPI and SEZ scheme
 The salient features and highlights of SIM and SE scheme are;
 Simplified procedures for setting Lip units and conducting business;
 Single window clearance for setting up of a unit;
 Duty free import on procurement of goods for setting up of a unit
 Exemption from customs duty on import of capital goods, spares, etc.:
 Exemption from Central Excise duty on the procurement of capital goods, raw materials: and consumable spares, etc. from the domestic market
 100% foreign equity is allowed to be invested in the units set up under this scheme
 The unit is permitted to realize and repatriate to India the full export value of goods or software within a period of nine months from the date of export
 “Write-off” of unrealized export bills is permitted up to an annual limit of 5% of their average annual realization
 External Commercial Borrowings up to $ 500 million a year allowed without any maturity restrictions
 Simplified Minimum Export Performance norms i.e. ” Positive Net Foreign Exchange Earner”
 The sales in the Domestic Tariff Area. (DTA) is permissible;
What are the obligations of an STPI/SEZ unit?
A unit set up under the STPI/SEZ scheme carries the following obligation;
 They have to be a positive net foreign exchange earner
 They have to execute a legal undertaking with the relevant jurisdictional authority
 They have to submit periodic reports to the jurisdictional authority – development commissioner or director respectively
 The units will have to maintain proper accounting records to account clearly account for the fiscal benefits availed by them
 They can sell the goods in domestic tariff area subject to payment of applicable duties and taxes thereon
Distinction between SEZ and STPI scheme
The following comparative chart
Benefits SEZ STPI
Location An SEZ unit can be set up only in designated SEZ parks only STPI units can be set up anywhere in India
Lead time to set up Lead time to set up SEZ is longer Lead time to set up a STPI unit is comparatively less
Sub-leasing of surplus space A SEZ unit cannot sub-lease the surplus unless it is also the “developer” of the SEZ park Subject to removing all bonded capital goods, an STPI unit can sublease the surplus office space.
Income tax 100% income tax exemption for first five years and thereafter 50% exemption for next five years and thereafter 50% exemption for five years in case or re-investment of profits in terms of Section 10AA of the Income Tax Act. The income tax exemption has been withdrawn with effect from April 2011.
Construction material Goods for infrastructure development i.e., construction material can be procured without payment of duties. Goods for infrastructure development cannot be procured without payment of applicable duties.
Service tax SEZ units are exempted from payment of service tax in respect of services, which are exclusively used for authorized operations. The service provider names need to be registered upfront with the Service Tax authorities to claim exemption. STPI Unit is not eligible for upfront exemption from payment of service tax. However, they are eligible to take credit of service tax paid on input services and claim refund of tax so paid. Based on prior experience, the time lag to receive refund of service tax paid is very high and in most of the cases, authorities at lower level dispute them.
Central Sales Tax (“CST”) SE unit is exempted from payment of CST on goods procured indigenously STPI unit is not eligible for upfront exemption from payment of service tax. They have to pay the applicable taxes and claim reimbursement of the taxes so paid from the Government.
Local sales (“DTA Sales”) DTA sales are allowed subject to payment of applicable duties An STPI unit is eligible to sell locally, subject to achieving positive foreign exchange and payment of full excise duty equivalent of import duty
Customs recovery charges A SEZ unit is not liable for payment of payment of customs supervision charges by staff deputed in the SEZ park. The customs supervision charges will be paid by the developer A STPI unit is liable to reimburse customs supervision charges for staff deputed at the unit
Examination of Goods No routine examination of exported/imported goods by customs officials All goods imported by the STPI nit should be physically examined by the customs officials unless they are given specific permission for self- certification.
Labor Laws The state government are authorized to treat the units in SEZ as public utilities and accordingly delegate the powers of labor commissioner to the development commissioner of SEZ unit to anyone The state government is not empowered to delegate the powers of labor commissioner
Maintenance of balance in
Exchange Earners Foreign
Currency Account (“EEFC”) SEZ unit is permitted to retain 100% of the export proceeds received in convertible foreign exchange in EEFC account. STPI unit should convert 100% of the export proceeds received in convertible foreign exchange to INR within 30 days from the date of receipt.
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Pramodkumar R. Ladda
Company Secretary
Tel: +91-20-24570055 | Office Cell : +91- 9404923393, 8624919609, 9175395604 |
Personal Mob. : +91- 9922735476, 9595271145 | Skype id: pramodladda
Ladda Bhutada & Associates : 2nd Floor, OM Apartment, SR No. 496/B, KCC Classes Lane,
Opp. R. M. Kabara Electricals & Rale Estate, Kasba Peth, Pune – 411011 Maharashtra, India.
laddacs@gmail.com | http;//www.csladda.com
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