Category: SPECIAL ECONOMIC ZONES

SEZs are popular instruments in developing countries for pursuing export-led growth strategies, for easier integration into the world economy. The main advantage of SEZs can be summarised as promotion of industrialisation and economic growth through sustainable development.

WHAT CONSTITUTES a Special Economic Zone (SEZ) is determined individually by each country. According to the World Bank definition in 2008, a modern day SEZ typically includes “a geographically limited area, usually physically secured (fenced-in); single management or administration; eligibility for benefits based upon physical location within the zone; separate customs area (duty-free benefits) and streamlined procedures.” In an SEZ, business and trade laws relating to export and import are different (read, more liberal) as compared to other parts of the country.

An SEZ is projected as a duty-free area for the purpose of trade, operations, duty, and tariffs. This demarcated zone is considered to be a place outside the country’s national borders for all tax purposes. Thus, SEZs are like a separate island within the territory of a particular country. SEZs are located within a country’s national borders, and their aims include increased trade balance, employment, increased investment, job creation and effective administration. To encourage businesses to set up in the zone, financial policies are introduced. These policies typically encompass investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.

Most countries (including India) have specific laws for their SEZs. As per law, SEZ units are deemed to be outside the customs territory of the host country. Goods and services coming into SEZs from the Domestic Tariff Area (DTA) are treated as exports from that country and goods and services rendered from the SEZ to the DTA are treated as imports into that country. Within SEZs, units may be set-up for the manufacture of goods and other activities including processing, assembling, trading, repairing, reconditioning, etc.

The creation of SEZs by the host country may be motivated by the desire to attract Foreign Direct Investment (FDI). The benefits a company gains by being in a Special Economic Zone may mean that it can produce and trade goods at a lower price, aimed at being globally competitive.

Since Special Economic Zones cover a broad range of more specific zone types, the World Bank created a table to clarify distinctions between types of SEZs. These include Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ) / Free Economic Zones (FEZ), Industrial Estates (IE), Free Ports and Urban Enterprise Zones (UEZ) among others.

opening of China in 1979 by Deng Xiaoping, was the Shenzhen Special Economic Zone, which encouraged foreign investment and simultaneously accelerated industrialisation in this region. These zones attracted investment from multinational corporations. Following this example, SEZs have been established in several countries including India, Pakistan, Poland, Russia, Kazakhstan and the Philippines.

Several countries in the West Asia, North Africa and the Middle East were early adopters of free zones. Jordan, Israel, Syria, Iran, and Egypt, for example, established governmentrun zones in the 1960s and 1970s.

The majority of zones in the Middle East and North Africa region are Free Trade Zones, aimed at facilitating trade with their host countries. Though many of these zones permit manufacturing, trading and associated activities (for instance, packaging and repackaging, breakbulk) remain predominant. With a handful of exceptions, the economic contribution of zones in the Middle East has been negligible compared to zone programmes in the Far East and Latin America, largely due to their traditional focus on trading activities rather than manufacturing. The notable exceptions to this are zones in Egypt and Jordan, which have developed a manufacturing focus. Enterprises in the Qualified Industrial Zones (QIZs) in Jordan, for example, are engaged in apparel assembly operations for the US market.

The government-developed Jebel Ali Free Zone in Dubai, a major regional distribution and logistics hub, has become an important development model in the region. Its success has spawned an increasing number of similar zone developments in the Gulf, not just within the other Emirates, but also in Oman and Bahrain. Dubai has also taken the lead in developing new, specialised zones, including both Internet City and Media City, which promote exports in IT and media-related services. A $3.3 billion large-scale offshore financial services zone and commodities market is being developed on Saadiyat Island, AbuDhabi.

SEZs In India

The Special Economic Zone (SEZ) policy in India first came into inception on April 1, 2000. The prime objective was to enhance foreign investment and provide an internationally competitive and hassle free environment for exports. The idea was to promote exports from the country and realising the need that level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally.

SEZs were introduced to India in 2000, following the already successful SEZ model used in China. Prior to their introduction, India relied on Export Processing Zones (EPZs) which failed to make an impact on foreign investors. By 2005, all EPZs had been converted to SEZs. As of 2017, there are 221 SEZs in operation, with a further 194 approved for 2018. For developers to establish an SEZ in India, applications can be made to the Indian Board of Approval. Companies, partner firms, and individuals may also apply by completing Form-A which is available on the Department of Commerce’s website. There are four types of SEZs in India, which are categorised according to size: Multi-sector (1,000+ hectares); Sector-specific (100+ hectares); Free Trade & Warehousing Zone (FTWZ) (40+ hectares); and Tech, handicraft, non-conventional energy, gems & jewellery (10+ hectares).

INCENTIVES & FACILITIES

The incentives and facilities available to SEZ developers include:

• Exemption from customs/excise duties for development of SEZs for authorised operations approved by the BOA.
• Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act.
• Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.
• Exemption from dividend distribution tax under Section 115O of the Income Tax Act.
• Exemption from Central Sales Tax (CST).
• Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).

There were about 143 SEZs (as of June 2012) operating throughout India, by February 2016 this had risen to 187. 634 SEZs have been approved for implementation by the Government of India (as of June 2012).

With purpose-built infrastructure, specialised facilities, separate rules & regulations, exclusive connectivity to ports and other major industrial areas through multi-modal transport systems, Bahrain’s Free Trade Zones offer a competitive edge for foreign businesses operating out of here, contends Ivor Vaz

THE KINGDOM OF BAHRAIN is diversifying its economy away from unsustainable hydrocarbons resources to sectors such as banking and finance, trade and industry, retail and tourism. Its only physical link to Saudi Arabia via the King Fahd Causeway, constructed in 1986, has been a major contributor to inter-Gulf trade, tourism and retail. In terms of passenger traffic, the causeway is one of the busiest in the Middle East, with recorded traffic statistics of over 20 million passengers and 10 million vehicles in both directions each year.

With its world-class infrastructure, excellent connectivity, low operating costs and business-friendly laws, the island nation today attracts foreign direct investment by allowing businesses and companies to operate in the country while offering various incentives and tax-friendly policies.

In 2013, Bahrain was ranked as the 12th most-free economy in the world by the US Heritage Foundation think tank, making it the only Middle East and North Africa country to appear in the Top 20. Bahrain is home to three Special Economic Zones (SEZs), all of which were ranked in the Top 20 locations for inward investment, economic development and business expansion in FDI Magazine’s ‘Global Free Zones of the Future’report.

Bahrain has three central Free Trade Zones (FTZs):

Bahrain International Investment Park (BIIP), Bahrain Logistics Zone (BLZ), and Bahrain Airport Zone (BIA). Each FTZ offers a competitive edge for the foreign businesses operating in it with specialised infrastructure, worldclass facilities, exclusive regulations and rules, excellent multi-modal connectivity through sea, land & air to most of the Middle East & North African (MENA) markets, and offers a world-class environment for the businesses and companies to operate in the zone. The Free Trade Zones are predominately used for import, export, logistics and material processing.

Bahrain Logistics Zone (BLZ) Operated by Ports and Maritime Affairs (PMA) at the Ministry of Transportation and Telecommunication, the Bahrain Logistics Zone (BLZ) is a regional trans-shipment hub with highlyintegrated logistics, purposebuilt Infrastructure, large-scale berthing facilities and plot entry allowances, designed explicitly for handling container truck traffic and freight-forwarding operations while remaining as the dedicated customs- free zone and value-added logistics park in Bahrain. The port zone, which was launched in the year 2008, is close to the biggest port of Bahrain, Khalifa bin Salman Port (KBSP) and is located in the heart of Salman Industrial City in Al Hidd Industrial Area. It offers land plots of 3,000 sq. metres and more for lease. The 100-hectare zone focuses on third-party logistics, storage and distribution (for export and re-export), as well as other logistics services and activities.

Facilities

• Plots of land start at 3,000 sq. metres, while the zone itself covers 100 hectares.
• Expansion plans announced, including the construction of a new 66kV power station.

Benefits

• Customs-free zone
• 100 per cent foreign company ownership
• Land, sea and air access

Industries

• Third-party logistics
• Storage and distribution
• Logistics services and valueadded logistics services, including assembly

Bahrain International Investment Park (BIIP)

Located in the Salman Industrial City, Muharraq Island, the Bahrain International Investment Park (BIIP) is strategically positioned on the north coast of Bahrain, taking only a five minutes’ drive from the Bahrain Logistics Zone (BLZ) and ten minutes from the Khalifa bin Salman Port.

BIIP offers 100 per cent foreign ownership of companies, duty-free access to GCC markets, exemption from import duties on both raw materials and equipment and 100 per cent repatriation of capital. Located 5 kilometres from Bahrain

International Airport, BIIP consists of 2.5 million sq. metres of leasable land, costing $1.33 a sq. metres a year to rent.

The BIIP is not a considered a free zone according to the law as the businesses & companies located in the area are considered to operate from Bahrain mainland which is within the GCC market empowering them with seamless cross-border access with a regional promotion of their products and services. This is considered as an advantage as the foreign companies operating out this zone avails the benefits as such it is operating in a free zone and also the advantages of duty-free cross-border operations across the GCC since the company is located in Bahrain.

Facilities

• 2.5 million sq. metres of prime land, located close to Bahrain International Airport and Khalifa bin Salman port. Benefits
• 100 per cent foreign ownership
• Zero corporate tax, guaranteed for 10 years
• Exemption from import duties on raw materials and equipment
• Duty-free access to all GCC markets, including Bahrain
• Free-trade access to the US
• 100 per cent repatriation of capital
• No minimum capital requirements
• No recruitment restrictions for first five years Industries
• Manufacturing
• International services

Bahrain International Airport (BIA) The Bahrain International Airport (BIA) serves as a driver of economic growth in the region by offering topnotch airport facilities and modern air logistics. It was established in 1927 as the first airport serving the Kingdom of Bahrain and currently operates as a significant aviation hub in the region. It currently serves as the Gulf Air’s central hub of operations. In addition to this, the airport continually upgrades the facilities and services with the latest technology to make the existing airport into a world-class facility, with best-in-class customer service which is in line with the Kingdom’s long-term Bahrain Economic Vision 2030 and maintaining its reputation as a leading financial, cultural and aviation centre in the Middle East.

Bahrain International Airport (BIA) sits in 19th place in the Free Zones of the Future list, and is ranked the 5th best Airport Zone in the world. Offering cargo facilities, offices and retail space, the foreign trade zone has no customs duties. It is governed by Mumtalakat, the government vehicle for Bahrain’s non-oil and gas investments, established in June 2006 by royal decree.

While BIA is not a free zone, infrastructure plans are in their final stages, including a possible free zone. Currently, as with most airports, BIA has a bonded cargo terminal, which allows importers to delay the payment of duty until products leave the facility.

Facilities

• Cargo facilities at BIA are located in a 19,000 sq. metres terminal providing export cargo sales, trans-shipment facilities, breakbulk cargo handling, dangerous goods provisions, customs clearance. Benefits
• Bonded cargo terminal Industries • Cargo facilities
• Retail
• Advertising space
• Offices