STPI SEZ, Pros Cons

14th Mar 08 Suresh & Co., Chartered

Accountants

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SEZ Vs STPI

D S Vivek

Suresh & Co.,

Chartered Accountants


Accountants

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SEZ – Launching an Export Revolution

• SEZ : “Clearly demarcated industrial zone which constitutes a Free Trade enclave outside a country’s normal customs and trading system where foreign enterprises produces principally for export and benefit from certain tax and financial incentives”World Export Processing Zone Association

• In Ancient Times-these were FTZs on commercial routes for storing duty free goods before re-export

• Country should Export its Goods and Services and not its taxes : SEZ Blessed With Various Tax Incentives


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Objectives of SEZ

• Attracting Foreign Investments and Forex inflow

• Creation of Jobs and better standards of living

• Development of Infrastructural facilities

• Overall increase in Economic Activity

Note: Out of 200 notified, 2/3rd about 115 are in IT & ITES


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STPI-Holiday Season is Over

• 10% MAT on book profit from 2007-08

• No Tax Holiday from 2009-10

• Service Tax on IT Services (Customized Software)

• No relief on FBT on ESOP’s

• Deferred Tax Credit to be taxed under MAT

• Draft Transfer Pricing orders proposes 20% to 25% Mark Up


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SEZ -------------- STPI

• Tax Holiday of 5yrs-100%, 5 yrs-50%, 5 yrs-50% with conditions

• No MAT Tax

• Service Tax Exemption

• Local tax Exemption

• Excise & Customs Benefit available

• Above benefits also available to Developer

• Location specific

• Tax Holiday may not be extended post 1-4-09

• MAT of 10%

• No Service Tax Exemption

• No Local Tax Exemption

• Excise & Customs benefit will continue post 1-4-09

• Only Units are entitled for the benefits

• Not Location specific


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Other benefits for SEZ units

• Apart from manufacturing- Service and Trading Units are also allowed under SEZ

• Large scale infrastructure support will be available

• No License required for imports

• Items reserved for small scale can also be manufactured

• Customs clearance will be at the Zone and increased level of self certification

• Supplies to SEZ from DTA are deemed exports entitled for export benefits


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• State Governments allowed to dilute Labour Law applicability and can declare SEZ as public utility

• Managerial Remuneration upto Rs 20 lacs per month allowed

• Non Resident Managing Director allowed with Valid Visa

• Customs Duty payable (no SAD) on removal to DTA

• Collect Forex for DTA sales


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• Forex Nett off allowed

• ECB of less than 3 yrs maturity allowed

• Single window clearance for SSI registration, IEC, Pollution Control, Power Sanction, Labour law etc.

• Facility of Offshore Banking Units

• Proposal to exempt from Stamp Duty transactions with SEZ


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Disadvantage of SEZ

• Not Suitable for Small & Medium enterprises as large space available for exorbitant rates

• Excessive land acquisition in name of SEZ for real estate development

• Displacement of Farmers family and livelihood

• Exit would mean re-locating outside SEZ and not just debonding


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Way forward for SME’s

• Self Growth without incentive crutches-opportunity to prove

• Cost Management to keep production costs low and be competitive

• Utilize other Tax Benefits such as CENVAT Credit, EPCG, Duty DrawBack, CST Reimbursement etc.

• Better Management of Resources

• Operate in Niche High Value areas where customer pays for bettermargins

• Even for customers to get alternate service provider is equally difficult

• Hope for STPI Tax Holiday extension for SME’s


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Thanks to Esha Hariraj» For Data Compilation

Documents

STPI SEZ, Pros Cons