Why are Special Economic Zones important?

Last Updated at: Aug 26, 2022
Industry reports say that half of the 20 operational SEZs in Gujarat have experienced growth in export and imports in September and October 2020. An increase in demand for diamond jewellery from the US has pushed exports from Surat SEZ. Also, the establishment of new units and expansion by the existing bigger players has led to an increase in exports from other SEZs. 

Why are Special Economic Zones important?

Special Economic Zones (SEZ) in India is a specially delimited enclave. Most importantly, the economic laws in this geographical area are different from the prevailing laws in other parts of India. An SEZ is deemed as a foreign territory for matters that relate to the trade tariffs, duties, and operations.

Moreover, the SEZ Act of 2005 governs all the regulatory and legal aspects related to the development of SEZs and also regarding operations of units under SEZs.

What are the benefits of special economic zones for a country?

A country has many benefits by the set up of Special Economic Zones inside its territorial limits. Some of these are as follows:

  • Special Economic Zones promote exports of goods and services
  • SEZs generate employment opportunities for the population
  • Special Economic Zones can develop infrastructure facilities
  • SEZs can provide, in a concentrated area, the necessary conditions external investors may require. Moreover, these may include a skilled labor force, adequate infrastructure, and local input suppliers. Additionally, they can facilitate investment from foreign sources
  • Additionally, a well-executed SEZ helps generate spill-overs for the economy of the rest of the country. This is because domestic firms and industries outside an SEZ tend to upskill and expand, to be able to supply the SEZ firms.
  • SEZs can play the role of ‘testing grounds’ for the Government for implementing liberal business policies in the future. Likewise, the Government can decide to implement ‘successful’ policies across the country and dump the ‘unsuccessful’ ones.

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What are the benefits of registering a company in Special Economic Zones?

Some of the distinct advantages of registering a company in Special Economic Zones in India are as follows:

  • As per Section 10 AA of the Income Tax Act, companies registration in an SEZ gives a corporate tax holiday on export income for 15 years- 100 % for the first 5 years, 50% for the next 5 years and 50% of the reinvested profit for the remaining 5 years.
  • Such companies offer exemptions from Service Tax and Central Sales Tax. Concerned State Governments may also offer exemptions from State Sales tax
  • An exemption provides from customs duty to import raw materials, capital goods, consumable spares and so on
  • An exemption is provided from Central Excise Duty for procuring raw materials, consumable spares, and capital goods, etc from the domestic market
  • Single-window clearance will extend to these companies for necessary approvals from the Central and State Governments.