Special Economic Zone Sez Meaning Types India China

Special Economic Zone (SEZ) Meaning

SEZ directly contribute to economic growth by creating job opportunities, increasing exports and foreign exchange earnings. In addition, businesses outside the SEZ gain from SEZ operations, such as the indirect jobs created or the advantages directed to suppliers outside the zone.

Key Takeaways

Special economic zone is a delimited region in a country with several favorable characteristics attractive to investors. SEZ offers special tax breaks and other incentives to promote a business-friendly environment. The incentives primarily include tax incentives, easy access to land and infrastructure, and hiring skilled labor. SEZ is a commonly used idea that benefits governments in both direct and indirect ways. For example, it create jobs, increase exports, foreign exchange profits, technological dissemination, and economic prosperity.

Understanding Special Economic Zones

The special economic zone is a universal concept. However, the SEZ model and its management are not identical across the world; instead, it is country-specific. Nevertheless, an effective combination of foreign and domestic policies can create an outstanding SEZ system. Advanced Asian regimes are elevating their SEZ system by introducing high tech zones and large integrated zones.

Different stakeholders complete the effective institutionalization of SEZ. The government, as the most powerful stakeholder, develops SEZ policies and monitors their execution. SEZ authority, zone developer, zone operator, and zone user are the other significant players. SEZ authority usually carry out strategic planning, zone developers make land development and provide infrastructure, zone operators are in charge of the zone, and zone users start the business in the location.

The countries should focus on developing and providing prime consideration of investors like land, labor and infrastructure. The excellent advantage of establishing the SEZ are the following:

Increase in foreign direct investmentIncrease in exportsEmployment creationEconomic growthEconomic GrowthEconomic growth refers to an increase in the aggregated production and market value of economic commodities and services in an economy over a specific period.read moreExperiment new policiesTechnology dissemination

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#1 – Tax Incentives

One of the primary forms of fiscal incentive manifested by SEZ is the tax incentives to investors. Consequently, it has a significant influence on the location decision of foreign investors. Tax incentives take the form of tax refunds, tax exemptionsTax ExemptionsTax-exempt refers to excluding an individual’s or corporation’s income, property or transaction from the tax liability imposed by the federal, local or state government. These exemptions either allow total relief from the taxes or provide reduced rates or charge tax on some items only.read more, custom duties, tariff exemptions, corporate tax privileges, high-tech tax breaksTax BreaksA tax break is a tax benefit or tax concession allowed by the government to encourage businesses to increase their investments, ultimately boosting the economy. It comes in a variety of ways, such as claiming tax deductions or excluding profits from tax returns.read more and so on. Tax incentive legislation may vary between different SEZs. For instance, some provide full tax holidays while others offer partial tax holidays.

#2 – Labor

The availability of skilled labor resources is an essential factor in the location decision of SEZ. Therefore, SEZ should manifest adherence to basic labor standards and welfare measures to ensure labors well-being. However, there are circumstances in which companies take advantage of the various legislations of the SEZ system. Employees have a hostile work environment as a result. Low wages or lengthy work hours substantiate the worst-case scenario.

#3 – Land and Infrastructure

SEZ provides businesses with easy access to land and infrastructure. Land becoming increasingly expensive, particularly in prime areas, providing low-cost land and globally competitive infrastructureInfrastructureInfrastructure refers to fundamental physical and technological frameworks that a region or industry establishes for its economy to function properly.read more is a big incentive for businesses requiring large spaces.

Under the special economic zone act in many countries, businesses can enjoy relaxation in regulations or real estate laws tied with land access. In addition, SEZ provides specific offerings that are not available outside the SEZ regime, like foreign ownership or long-term leases, providing space for free or at a reduced price and tax incentives.

Types of SEZ

There are different types of SEZ. Let’s have a look at the most common type:

Free Trade ZonesExport Processing ZonesEnterprise Zones

#1 – Free Trade Zones

Free trade zones generally receive imported components and provide facilities for warehousing, manufacturing and distribution. Since most FTZs are near ports, it eliminates transportation bottlenecks and decreases the overall turnaround times. FTZ focuses on lowering the overall cost of doing business by reducing the amount of money spent on customs duties. The FTZ design results in avoiding paying hefty tariffs and going through customs. Thus, making international tradeInternational TradeInternational Trade refers to the trading or exchange of goods and or services across international borders. read more considerably easier. In addition, it enhances the locality development by generating local employment.

#2 – Export Processing Zones

Export processing zone aims at developing industrial estates by facilitating raw materialRaw MaterialRaw materials refer to unfinished substances or unrefined natural resources used to manufacture finished goods.read more import, warehousing, manufacturing and manufactured goods export facilities with attractive incentives like tariff exemptions to lure FDIs. EPZs are established in developing nations to join the international economy and ultimately encourage economic growth by focusing on foreign markets.

The main benefits of EPZ are:

Foreign exchange earningsLinkage to the global economyEconomyAn economy comprises individuals, commercial entities, and the government involved in the production, distribution, exchange, and consumption of products and services in a society.read moreIncrease in employment opportunitiesTransfer of knowledge, technology and management skills

#3 – Enterprise Zones

Enterprise zones are another type of SEZ designed in a neighborhood offering tax credits and other subsidies to promote the local area’s economic growth. Unlike different kinds of SEZ, enterprise zones are typically neighborhoods or areas looking to rebuild and encourage development. A few goals of enterprise zones include:

Job creationEconomic growth in the neighborhoodIncrease tax revenues

Special Economic Zones in India

India was one of the first Asian countries to develop SEZ to attract foreign direct investmentForeign Direct InvestmentA foreign direct investment (FDI) is made by an individual or an organization, into a business located in a foreign country. The host nation receives job creation prospects, advanced technology, a higher standard of living, infrastructural development, and overall economic growth.read more. In 1965, India established the first export processing zone of Asia in Kandla, Gujarat. In 2021, the total number of operational special economic zone in Gujarat is 21.

According to sezindia, as of 31.07.2021, there are 267 operational SEZs. Few states with a significant number of operational SEZ are the following:

Tamil Nadu (49)Karnataka (34)Maharashtra (37)Telangana (35)Gujarat (21)Andhra Pradesh (24)

SEZ formed by the central government are the following:

SEEPZ SEZKandla SEZCochin SEZMadras SEZVisakhapatnam SEZFalta SEZNoida EPZ

Special Economic Zones in China

The first four special economic zones Shenzhen, Zhuhai, Shantou, and Xiamen, were formed in 1979 after China ended its isolation policy and adopted an open-door policy to encourage fair trade with other nations. In the development of SEZs, access to port infrastructure and overseas markets remained the essential element.

China successfully experimented with economic policies in attracting foreign direct investments. As a result, the Chinese system laid the groundwork for contemporary SEZ development, and its influence has spread internationally.

The following statistics of 2015 from the World bank reveal just how successful the SEZ in China is:

22% contribution to GDP45% total FDI60% of exportsCreated around 30 million jobs30% increase in participating farmers income