NEW RULE OF SEZ (Syllabus: GS Paper 3 – Economy)

Context: The Centre’s move to allow partial denotification of special economic zones (SEZs) into non-SEZs in IT and IT-enabled services parks has prompted developers and real estate investment trusts (REITs) to denotify SEZ spaces.

Special Economic Zone

• Definition: It is a territory within a country that is typically duty-free (Fiscal Concession) and has different business and commercial laws chiefly to encourage investment and create employment
• Origin: The Special Economic Zone (SEZ) policy in India first came into inception on April 1, 2000. 

oSEZs in India functioned from 2000 to 2006 under the provisions of the Foreign Trade Policy and fiscal incentives were made effective through the provisions of relevant statutes.

• Objective: to enhance foreign investment and provide an internationally competitive and hassle free environment for exports. 
• SEZ act: The Special Economic Zones Act was passed in 2005 and came into force along with the SEZ Rules in 2006.
• Apex body: The Board of Approval is the apex body and is headed by the Secretary, Department of Commerce (Ministry of Commerce and Industry).
• Eligibility: Any private/public/joint sector or state government or its agencies can set up an SEZ.

oA foreign agency also can set up SEZs in India.

New SEZ Rules

• Special Economic Zones Act, 2005: The SEZ Act, 2005 aimed to boost exports by offering tax incentives to companies operating within SEZs.
• Changes Post 2020: Tax benefits under the SEZ Act ceased in 2020, leading to increased compliance requirements for firms within SEZs.
• Decline of IT/ITeS SEZs: The cessation of tax benefits led to a loss of appeal for IT/ITeS SEZs, resulting in a gradual departure of tenants.
• Amendments in 2023: On 6 December 2023, the Central government revised the SEZ Act, allowing for the demarcation of SEZ areas into non-SEZ areas after the repayment of availed tax benefits.
• Potential Benefits of Amendments: Demarcated areas within SEZs are anticipated to experience improved occupancy rates and higher rental income, aligning with the performance of existing non-SEZ spaces.