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14th Mar 08 Suresh & Co., Chartered
Accountants
1
SEZ Vs STPI
D S Vivek
Suresh & Co.,
Chartered Accountants
14th Mar 08 Suresh & Co., Chartered
Accountants
2
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
14th Mar 08 Suresh & Co., Chartered
Accountants
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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
14th Mar 08 Suresh & Co., Chartered
Accountants
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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
14th Mar 08 Suresh & Co., Chartered
Accountants
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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
14th Mar 08 Suresh & Co., Chartered
Accountants
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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
14th Mar 08 Suresh & Co., Chartered
Accountants
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Other benefits for SEZ units
• 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
14th Mar 08 Suresh & Co., Chartered
Accountants
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Other benefits for SEZ units
• 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
14th Mar 08 Suresh & Co., Chartered
Accountants
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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
14th Mar 08 Suresh & Co., Chartered
Accountants
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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
14th Mar 08 Suresh & Co., Chartered
Accountants
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Thanks to Esha Hariraj» For Data Compilation