The Government of India has taken a number of measures to encourage foreign investment into India, generally, with a particular focus on the export of goods and services out of India. These measures include the introduction in 2005 of a SEZ regime under which specified land is deemed to be “foreign territory” for the purposes of Indian customs controls, duties and tariffs. SEZs provide an internationally competitive and relatively unregulated environment for export-oriented activities.
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The SEZ scheme has been designed to assist Indian companies overcome the various disadvantages and costs that may otherwise prevent investment and development. The rationale for SEZ in India includes: Ã¢â‚¬Â¢ Infrastructure – According to industry estimates, it is estimated that the cost of infrastructure would be lower by approximately 20%, as materials and services purchased by the SEZ developer are exempted from customs, excise duty, service tax and central sales tax. Investments in SEZs are treated as infrastructure development and are thus eligible for exemption. Ã¢â‚¬Â¢ Financing – The SEZ regime also provides for financing at international rates. It allows a company to establish offshore banking units (“OBUs”) and international financing centres (“IFCs”) in the SEZs. OBUs are entitled to an income-tax exemption for 10 years and they are exempt from the requirement of statutory liquidity ratio, which results in the availability of more sources of funds. Such OBUs and IFCs will be exempted from tax deducted at the source on its borrowings and deposits from Non-Resident Indians. These measures are intended to reduce the OBU’s cost of credit for SEZ-approved institutions. The services provided by an SEZ-approved institution are free from service tax and income tax, dividend payments are also free in the hands of payer and payee and a stamp duty exemption has been provided for SEZ estate transactions. Ã¢â‚¬Â¢ Exports – India’s share in global trade is only 0.9% despite it being one of the fastest growing economies in the world. SEZ will help boost the exports of the country, particularly non traditional once, by making the same feasible and attractive. This will also in turn affect the foreign exchange earning capacity and contribute to the exchange rate stability. Ã¢â‚¬Â¢ Development – Locations for SEZ plays a very important role in the development of backward regions. New industries are setup which creates jobs and raises the standard of living for the region. Various parties are involved the establishment, development and operation of a SEZ, including the following: Ã¢â‚¬Â¢ government and related governmental authorities that grant development rights for an SEZ establish policies and guidelines, assist with implementation and are empowered to provide financial support to an SEZ-approved institution. They are the most important party as they forgo the direct revenues and provide incentives for setting up of SEZ; Ã¢â‚¬Â¢ Developers, including co-developers, which are enterprises engaged in the establishment and development of the zone,
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