"Elucidate Special Economic Zones. What is the difference between Special Economic of Zone and Export Processing Zone? How China benefiting from SEZ policy?"

The main objective of SEZ is to f an provide an internationally competitive and hassle-free environment for export production. The SEZs imply a qualitative transformation of traditional Export Processing Zone. The units operating in these zones are deemed as outside the nations' customs territory and shall have full flexibility in operations. They can import capital goods and raw materials duty free. The only precondition is that the units in the zones would have to be a net foreign exchange earner.

The benefits available for an SEZ are

(a) Tax-breaks for 15 years, including 100 per cent I-T exemption for 5-years. The law had provided complete tax-holiday for SEZ units till March 2009 on their export earnings.
(b) For developers and units, there are no exemptions from sales tax, excise, MAT and customs on raw materials imported in the zones, which are deemed to be foreign territory.
(c) 100 per cent FDI in manufacturing units, exemption from VAT, dividend tax and all cesses.
(d) to have simpler labour laws.
(e) good infrastructure, land at cheaper rates for real estate development. The law also permits them to work as real estate developers since they can use 75 per cent of the area in the multi-product zones for building houses, malls, golf courses and multiplexes.
(f) To have better banking facilities. The Off- shore Banking Units (OBUs) are now allowed to operate in SEZs. OBUs are virtually foreign branches but located within India. This is also called OBU. They are not required to maintain SLR and CRR and that is why they can lend on cheaper rates to exporters. In SEZ, service tax is abolished or ended.

Conditions for SEZs- While units are required to political net foreign earnings for 3 years; it permits 100 per cent foreign investment in manufacturing activities, including items which are reserved for Small-scale industries.

Problems with SEZs

1. In 2000 SEZs were introduced and some 65 SEZs have been approved but only 15 are in operation and this includes 8 EPZs.
2. The labour laws are a backbone of contention for SEZs. 3. If primarily attraction of SEZs is a tax benefits that are offered, the investment is likely to be a diversion from Domestic Tariff Area.
4. The zones themselves are often too small as little as 100 hectares. For some special kind of industries, like software, bio-technology, gems and Jewellery, the minimum size has been reduced to 10 hectares-which would be inadequate for development of a proper industrial space.
5. Overall, SEZs would not be subject to any predetermined value additions, export obligations, Input, output wastage norms, and treated as outside the customs territory.
However, any sale in the Domestic Tariff Area by the units of these zones will be allowed only on payment of full customs duty. Probably the only difference between EPZ and SEZ is that in an EPZ, customs permission is required for taking the raw materials from one place to another, it is not needed in Special Economic Zones. In China, SEZ are treated as public utilities and are spared bouts of labour unrest.

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