What is a Special Economic Zone (SEZ)?
Special Economic Zone (SEZ) 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.
Who can set up a SEZ?
Any private/public/joint sector company, State Government, or State Government agency can set up a Special Economic Zone (SEZ).
What is a Multi Product SEZ?
“Special Economic Zone for multi-product” means a SEZ where units may be set up for manufacture of two or more goods in a sector OR goods falling in two or more sectors or For Trading & Warehousing or Rendering of two or more services in a sector or services falling in two or more sectors According to the rules prevailing at the time of writing, the SEZ should have a minimum area of 1000 hectares (unless it is a product-specific SEZ or port/air strip based SEZ) and at least 50% of the area should be earmarked as industrial area
What is sector Specific SEZ
Special Economic Zone for specific sector” means a SEZ meant exclusively
For one or more products in a sector OR For one or more services in a sector
What are the Fiscal benefits for a SEZ unit?
- Single window clearance for Central and State level approvals.
Customs and Excise
- Duty free import (or domestic procurement), without any license or specific approval, of capital goods, raw materials, consumables, spares, packing materials, office equipment, and anything else required for implementation of their project in MPSEZ
- Generous 5 year period for utilization of goods imported duty-free or goods procured locally
- Exemption of domestic sales from Special Additional Duty (SAD)
- Domestic sales of finished products or by-products, on payment of the applicable Customs duty
- Domestic sales of rejects, waste and scrap, on payment of the applicable Customs duty
- Physical export benefit
- 100% exemption from Income Tax under Sec 10A of the Income Tax Act, ---, for the first 5 years, and 50% exemption for the next 5 years
- Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
- Reinvestment allowance of up to 50% of ploughed back profits for next 5 years
- Carry forward of losses to the next financial / accounting year
Foreign Direct Investment (FDI)
- 100% FDI under the automatic route is allowed in MPSEZ units in the manufacturing sector, except in the following areas: arms and ammunition, explosive, atomic substance, narcotics and hazardous chemicals, distillation and brewing of alcoholic drinks and cigarettes, cigars and manufactured tobacco substitutes
- There is no cap on foreign investments for items reserved for small scale industries
Banking / Insurance / External Commercial Borrowings
- Setting up of Off-shore Banking Units (OBU) is permitted in MPSEZ
- OBUs are allowed 100% Income Tax exemption on profits for 3 years and 50% exemption for the next two years
- External commercial borrowings by SEZ units, up to $500 million a year, is allowed without any restrictions on maturity - for details please refer to guidelines issued by the Reserve Bank of India (F.No. 4(2)/2002-ECB, dated 15.9.2002)
- Entrepreneurs have freedom to bring in export proceeds without any time limit
- SEZ units can keep 100% of export proceeds in an EEFC (Exchange Earner Foreign Currency) account and make overseas investment from this account
- Commodity hedging is permitted
- SEZ units are exempt from the interest surcharge on import finance
- SEZ units are allowed to write-off unrealized export bills
Central Sales Tax Act
- SEZ units are exempt from paying Central Sales Tax on sales made from Domestic Tariff Area to other SEZ units
- SEZ units are exempt from Service Tax
- SEZ units are exempt from public hearing under Environment Impact Assessment Notification
- MPSEZ is providing a CETP for Chemical, Textile & other industries whose effluent needs to be treated
- Marine discharge facilities can be made available
- Directors of SEZ units do not have to fulfill the requirement of 12 months domicile in India prior to appointment as Director
- SEZ units are allowed to sub-contract part of their production to units in the Domestic Tariff Area or to other Export Oriented Units or SEZ units
- SEZ units may also sub-contract part of their production abroad
- Agro industries in SEZ are allowed to provide inputs and equipment to contract farmers in the Domestic Tariff Area for their supplies
Is MPSEZ exempt from labour laws?
Labour laws of state of Gujarat (in which MPSEZ is located) apply to MPSEZ, and these are enforced by the State Government but a separate relaxed labour policy has been promulgated for Gujarat SEZ’s. ic.gujarat.gov.in/Ind_guj/export_sez.html
How can Domestic suppliers supply to SEZ units?
Supplies from Domestic Tariff Area (DTA) to SEZ are treated as exports. Please see http://www.cbec.gov.in for updated information on this matter. At the time of hosting, DTA supplies to SEZ are entitled to:
- Drawback / Duty entitlement passbook(DEPB); Advance License / DFRC
- Exemption from all State & Central Taxes / levies
- Income Tax benefits as applicable to physical exports under Section 80 HHC of the Income Tax Act.
What is the approval mechanism for setting up a unit in MPSEZ?
The Unit Approval Committee, headed by the Development Commissioner, has to approve the proposal to set up a unit in any SEZ. Clearance from the Department of Policy and Promotion/Board of Approvals, wherever required, will be obtained by the Development Commissioner, before the Letter of Intent is issued.
Can foreign companies set up a unit in a SEZ?
Yes, a foreign company can take the Automatic Approval Route to set up a unit in an SEZ.
What is the obligation of a SEZ unit?
Handbook of Procedures, Vol. 1 and Vol. 2, published under the provisions of the paragraph 2.4 of the SEZ Policy, details the obligations of a unit to be set up within an SEZ. Some of the key factors are:
- SEZ units have to achieve net positive foreign exchange earning as per the formula given in paragraph Appendix 14-II (para 12.1) of the handbook mentioned above. A legal undertaking to this effect has to be given by the unit to the Development Commissioner
Net Foreign Exchange inflow – Net Foreign Exchange outflow > 0
- SEZ units have to provide periodic reports to the Development Commissioner and Zone Customs as provided in Appendix 14-I F of the Handbook of Procedures, Vol. 1
- SEZ units have to execute a bond with the Zone Customs for their operations in the SEZ
- Any company set up with Foreign Direct Investment (FDI) has to also be incorporated under the Indian Companies Act to operate in India.
What is the role of the Development Commissioner?
The Development Commissioner (DC) is the nodal officer for SEZs. He is mandated to assist in the resolution of problems faced by the SEZ developer or the units in the SEZ.
DC of Mundra SEZ has already been appointed & is available in MPSEZ.
Routine examination of goods by Customs is common in Export Oriented Units. Is it the same at MPSEZ?
No. Customs examination is minimal in SEZs. SEZ units function on a self-certification basis for EXIM cargo.
What is Domestic Tariff Area (DTA)?
“Domestic Tariff Area” means the whole of India (including the territorial waters and continental shelf) but does not include the areas of the Special Economic Zones.
How do I set up a unit in Mundra SEZ?
Who monitors the functioning of units in MPSEZ?
A Unit Approval Committee, consisting of the Development Commissioner, Custom authorities and representative of the State Government, monitors MPSEZ units on an annual basis.
Are licenses required for imports into MPSEZ?
No. Licenses are not required for imports into MPSEZ. This applies to second hand machinery also.
Can MPSEZ units sell to other units in MPSEZ?
Yes. Inter Unit Sales are permitted according to the SEZ Policy which also stipulates that a SEZ unit procuring from another SEZ unit pays in any Foreign Convertible Currency.
Such sales will be a part of the positive foreign exchange earning of the selling unit.
Since MPSEZ is a multi product SEZ with cluster formation, huge opportunity awaits SEZ units for sale within the zone.
What are the USPs of MPSEZ?
The following features given to the units in MPSEZ, a competitive advantage over those in most other SEZs of India:
- MPSEZ is one of India’s largest SEZs, having an area of 100 sq. km.
- It is the only Indian SEZ which has air, rail and sea connectivity as detailed below:
- An in-zone port and international container terminal
- An in-zone air strip
- In-zone rail connectivity
- MPSEZ is a multi-product and multi-sector SEZ
- MPSEZ is notified and operational
- MPSEZ is executing an excellent social infrastructure, making it easier to attract and retain employees by fulfilling Living, Learning & Recreational requirements.
- MPSEZ has high quality infrastructure with park-wise development taking into account specific requirements of each target industry.
- MPSEZ will provide all utilities including Power, Water & Effluent treatment through in-zone facilities.
- MPSEZ provides water front manufacturing for ODC or Heavy Cargos.
- MPSEZ has created manufacturing possibilities in Port Back up area making every manufacturing unit a part of the Supply Chain Management.
- Port based SEZ will ensure saving / advantages in demurrage costs, inventory levels, cash flows, delivery periods, etc.