NEW SPECIAL ECONOMIC ZONE(SEZ) RULES
WHY IN NEWS?
- Recently, Centre government allowed partial denotification of special economic zones (SEZs) into non-SEZs in IT and IT-enabled services parks.
WHAT ARE SEZs?
- SEZ is an area that is designed to generate positive economic growth in a country.
- The term “special economic zones” (SEZs) covers a broad range of zones from free-trade zones, export-processing zones, industrial parks, economic and technology-development zones, science and technology parks, free ports etc.
- The economic regulations and rules of SEZs tend to be more conducive to businesses, entrepreneurs and therefore attract FDI.
TYPES OF SEZs:
Following are the types of SEZs:
- Free-Trade Zone: They are specially secured areas designated for the processing of imported and exported goods. They are also known as commercial-free or foreign-trade zones, as these areas involve special customs procedures and duty-free treatment.
- Export Processing Zone: EPZ are generally meant for commercial and industrial exports. Their goal is to encourage economic growth through foreign investment. They offer certain benefits, such as tax and import duty exemptions, and little to no barriers.
- Industrial Park: These parks are designed to be used for industrial instead of commercial or residential purposes. Tax-related incentives are common benefits for those that use these special zones.
BENEFITS OF SEZs:
- They may help increase the export levels for the implementing country and other countries that supply it with intermediate products.
- Special economic zones are designed to create and boost economic growth.
- Users and investors within the SEZs can take advantage of certain benefits, including favorable regulations, taxation and exemptions.
- SEZs also provide a bundling of public services in a geographically concentrated area
- SEZs help improve the efficiency of limited government funds/budgets for infrastructure
- They also facilitate cluster development, or agglomeration of certain industries
STATUS OF INDIA’S SEZs:
- Asia’s first EPZ was established in 1965 at Kandla, in the state of Gujarat.
- As of 2023, India has 272 operational SEZs, providing employment to more than 2.8 million people.
- SEZs also generated around US$133 billion in exports, with service exports comprising around 60 percent of the total.
- On the other hand, Goods exports from Indian SEZs reached US$61 billion in FY 2022-23.
- Kandla SEZ alone accounted for US$38 billion in export value.
- Investments into these SEZs grew to INR 656 billion (US$7.87 billion) as of December 2022.
- SEZ exports increased from INR 228.40 billion (US$3.07 billion) in 2005-06 to INR 7595.24 billion (US$102.24 billion) in 2020-21.
- Investment in SEZs increased from INR 40.355 billion (US$0.54 billion) in 2005-06 to INR 6174.99 billion (US$83.12 billion) (cumulative basis) by 2020-21.
ABOUT NEW SEZs RULES:
- The Special Economic Zones Act, 2005 was introduced in India to drive exports by giving tax breaks to firms operating in SEZs.
- Though the tax benefits ended in year 2020, but higher compliance requirements continued.
- With this amendment, IT/ITeS SEZs lost their appeal and saw a gradual exit of tenants.
- On 6 December 2023, the Central government made amendments to the SEZ Act, permitting demarcation of parts of SEZ areas as non-SEZ areas after repayment of tax benefits availed till date.
- Demarcated areas are expected to have better occupancy and higher rental income, in line with existing non-SEZ spaces.
IMPACT OF NEW RULES:
- Developers and Real estate investment trusts (REITs) can now lease non-processing areas to IT firms or global capability centres not engaged in exports, thus expanding their tenant base.
- Partial de-notification will also led to freeing up of significant space, increase the attractiveness for diverse occupiers and help in achieving higher occupancy levels.
- The new rules are particularly relevant for operational IT/ITes SEZs.
- Most REITs, which own largely completed assets, are expecting the benefits to start showing on their financials from the first half of FY25.
