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Special Economic Zones
And their impact on Export
Promotion
May 17, 2007
Vivek Mehra
INDIA -Demographics
“India needs to generate 200 million additional jobs over the next 20 years”.
- Planning Commission
500 mn
people < 25 years
333 mn
in rural areas
673 mn
Working age population in 2005
(15-64 yrs as % of total population)
872 mn
Working age population in 2020
71 mn
People entering workforce by 2010
48 mn
People entering workforce in rural areas
Particularly for 48 mn rural youth
Where are 71 mn jobs going to come from?
IT & BPO sector – 8.8 mn jobs by 2010*
( Mainly Urban Educated )
* Source : NASSCOM
Balance 62 mn
from
Services & Manufacturing !!!
Manufacturing sector has to carry the major burden of
increasing employment opportunities
Key concerns
• Revenue Loss
• Relocation
• Diversion
• Large number of SEZs
• Value add / export obligation
• Non Processing Area
• Real Estate
• Land Acquisition
• No tax on O&M
Competitive
Environment The Global Manufacturers have a choice…
Indian
SEZs
Corporate
Tax rates
33.9%
Chinese
SEZs
15%
Philippines Thailand Malaysia Vietnam
EcoZones
DFZs
FTZs
EPZs
35%
30%
28%
10%
Direct Tax
Incentives
(70%- 100%)
100% Tax
Holiday
5 years
(from 1st yr)
2 years
(from year of
profit)
50% Tax
Holiday
Next 10 yrs
Next 3 years
4-8 years
(from year of
profit)
----
3-8 years
(from year
of profit)
----
5-10 years
(from year
of profit)
4 years
(from year
of profit)
----
----
Tax incentives for infrastructure development
SCHEME
Infrastructure
Tax Incentives
Already
available
For
Infrastructure
• Roads, bridges, rail systems, water supply
projects, water treatment systems,
irrigation projects, sanitation and
sewerage systems or solid waste
management system, Ports, airports,
inland waterways or inland ports,
generation and distribution of power
TAX INCENTIVES
• 10 years income tax holiday
• Selective exemption from Custom Duty and
CENVAT
For Developers:
Industrial Parks
(u/s 80 IA of
Income Tax Act)
 10 years tax holiday
For units in specified states like HP,
Uttaranchal, Sikkim etc
 Tax Holiday on Domestic and Export Profits
100% First 5 year (10 years for some
states)
30%
Next 5 years
 CENVAT exemption
For SEZ Developers:
Is criticism
justified?
• 10 years tax holiday
SEZs
For SEZ units
 Tax Holiday only on “Export Profits”
 100% First 5 years
 50%
Next 10 years
SEZ TAX INCENTIVES - REVENUE LOSS
OR
GAIN??
MoF
ESTIMATES
INR Cr
OUR
ESTIMATE
INR Cr
Direct-tax loss on Export profits from
SEZs
57,531
22,913
Indirect-tax loss on investments in SEZ
40,164
10,512
97,695
33,065
Based on MoF estimates
Figures relate to period 2005-2010
SEZs : BASIS OF REVENUE LOSS ESTIMATES (2005-2010)
INR Cr
MOF Estimates
Investments in SEZs
Exports from SEZs
Profits @ 20%
3,60,000
8,53,000
1,70,600
REVENUE LOSS AS
PER MoF
REVISED LOSS
ESTIMATES
INR Cr
Tax Rate
Customs 29,700
Excise 10,464
TOTAL
40,164
INDIRECT
10%
16%
EOU – NIL
EPCG – 5%
CVD FULLY OFFSET
10,152
Income Tax 57,531
33%
Upto 31.03.09 Sec 10
exemption
Rs. 22,913
TOTAL TAX LOSS
97,695
SHOULD BE
INR Cr
(@3%)
(2009-10)
33,065
Revenues gains from Additional Economic Activities (AEA)
i.e. increase in GDP (2005-2010)
Activity
INR Cr
Investments in SEZs
Less : estimated Imports as per MOF
3,60,000
1,08,000
Export sales
Less : Imports @ 30% of 2,55,900
Profits @ 20% of 1,95,720
8,53,000
Domestic sales
Say 20% of total sales
Less : Imports@ 20%
Profits @ 20%
2,13,250
42,650
42,650
2,52,000
4,51,620
4,01,380
1,27,950
1,27,950
7,81,330
INR Cr
Total increase in GDP
Direct & Indirect-tax earnings from AEA
Revenue Gains
Tax to GDP Ratio : 10.8%
Income-tax @ 34% on Domestic sale profits
Indirect-taxes on Domestic sales (customs & CVD)
Total Revenue Gains
84,383
14,500
58,857
1,57,740
Based on MoF estimates
Figures relate to period 2005-2010
Estimated Revenue Loss
Estimated Revenue Gains
Hence minimum incremental
activity necessary for SEZ
incentives to be revenue neutral
33065 Crs Rs.
157740 Crs Rs.
21%
Thank You
Vivek Mehra
Executive Director
Email:
Tel:
Fax:
Cell:
[email protected]
+91 (11) 41150503
+91 (11) 23210594
+91 98110 68118
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