SEZ & Tax Free Zone
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 labour regulations. Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.
The creation of special economic zones by the host country may be motivated by the desire to attract foreign direct investment (FDI). The benefits a company gains by being in a special economic zone may mean that it can produce and trade goods at a lower price, aimed at being globally competitive. In some countries, the zones have been criticized for being little more than labour camps, with workers denied fundamental labour rights.
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.
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 term special economic zone can include:
· Free-trade zones (FTZ)
· Export processing zones (EPZ)
· Free zones/ Free economic zones (FZ/ FEZ)
· Industrial parks / industrial estates (IE)
· Free ports
· Bonded logistics parks (BLP)
· Urban enterprise zones
Free Trade Zone
A free-trade zone (FTZ) is a class of special economic zone. It is a geographic area where goods may be imported, stored, handled, manufactured, or reconfigured and re-exported under specific customs regulation and generally not subject to customs duty. Free trade zones are generally organized around major seaports, international airports, and national frontiers—areas with many geographic advantages for trade.
The World Bank defines free trade zones as “small, fenced-in, duty-free areas, offering warehousing, storage, and distribution facilities for trade, transshipment, and re-export operations”. Free-trade zones can also be defined as labor-intensive manufacturing centers that involve the import of raw materials or components and the export of factory products, but this is a dated definition as more and more free-trade zones focus on service industries such as software, back-office operations, research, and financial services.
Export-processing zone An export-processing zone (EPZ) is a specific type of FTZ usually set up in developing countries by their governments to promote industrial and commercial exports. According to the World Bank, “an export processing zone is an industrial estate, usually a fenced-in area of 10 to 300 hectares, that specializes in manufacturing for export. It offers firms free trade conditions and a liberal regulatory environment. Its objectives are to attract foreign investors, collaborators, and buyers who can facilitate entry into the world market for some of the economy’s industrial goods, thus generating employment and foreign exchange”. Most FTZs are located in developing countries; Brazil, Colombia, India, Indonesia, El Salvador, China, the Philippines, Malaysia, Bangladesh, Nigeria, Pakistan, Mexico, the Dominican Republic, Costa Rica, Honduras, Guatemala, Kenya, Sri Lanka, Mauritius, and Madagascar all have EPZ programs. In 1997, 93 countries had set up export processing zones, employing 22.5 million people, and five years later, in 2003, EPZs in 116 countries employed 43 million people.