SEZ Vs STPI

D S Vivek
Suresh & Co.,
Chartered Accountants

14th Mar 08 Suresh & Co., Chartered 1

Accountants
 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 2

Accountants
 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 3

Accountants
 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 4

Accountants
 SEZ -------------- STPI
• Tax Holiday of 5yrs-100%, • Tax Holiday may not be
5 yrs-50%, 5 yrs-50% with extended post 1-4-09
conditions
• No MAT Tax • MAT of 10%
• Service Tax Exemption • No Service Tax Exemption
• Local tax Exemption • No Local Tax Exemption
• Excise & Customs Benefit • Excise & Customs benefit
available will continue post 1-4-09
• Above benefits also • Only Units are entitled for
available to Developer the benefits
• Location specific • Not Location specific
14th Mar 08 Suresh & Co., Chartered 5
Accountants
 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 6

Accountants
 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 7

Accountants
 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 8

Accountants
 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 9

Accountants
 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 better
margins
• 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 10

Accountants
 Thanks to Esha Hariraj
» For Data Compilation

14th Mar 08 Suresh & Co., Chartered 11

Accountants