SEZ, STP, EHTP, EOU and Bio-Tech-Park … in india

Special Economic Zones (SEZs)

Special Economic Zones (SEZs) are specific geographical regions that have economic laws different from and more liberal than a country’s typical economic laws. The goal is usually an increase in Foreign Direct Investment (FDI) in the country. A policy for setting up of SEZs in the country with a view to provide an internationally competitive and hassle free environment for exports was introduced on April 1, 2000 . An SEZ is like a foreign territory within a country. An SEZ is governed by a special set of rules to facilitate foreign direct investment for export-oriented production. These zones are typically marked by minimum bureaucracy, best infrastructure, generous tax holidays, unlimited duty free imports of raw, intermediate and final goods as well as capital goods and a package of incentives to attract foreign and domestic investments for promoting export-led growth. Units may be set up in SEZ for manufacturing of goods and/or rendering of Services.

SEZs are not a new phenomenon in INDIA , In fact, the first such zone in the country was set up way back in 1965 at Kandla. But it was known then as the Economic Processing Zone. Thereafter, in 1972, the Santacruz Electronic Export Processing Zone (SEEPZ) was launched in Mumbai.

The main objectives of the SEZ Act are:

• Generation of additional economic activity
• Promotion of exports of goods and services;
• Promotion of investment from domestic and foreign sources;
• Creation of employment opportunities;
• Development of infrastructure facilities;

It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.

Types of SEZs

A developer can set up SEZs of the following types:

1. SECTOR SPECIFIC SEZs

• Defined as a zone meant exclusively for one or more products or services in one sector.
• Minimum area requirement is 100 hectares (reduced to 50 hectares for specified States and Territories).
• For Electronic hardware and software including IT/ITES, minimum area required is 10 Hectares with a minimum built up processing area of one lakh square rneters.
• For biotechnology, non-conventional energy including solar energy equipments/cells, or gem and jewellery sectors, the minimum area requirement is 10 Hectares.

2. MULTI-PRODUCT SEZs

• Signifies an SEZ where units may be set up for manufacture/rendering of services of two or more goods/services in a sector or goods/services falling in two or more sectors.
• Minimum area requirement is 1000 hectares (reduced to 200 hectares for specified States and Territories like in Assam , Meghalaya, Nagaiand, Mizoram, Manipur, J&K, Tripura , Sikkim , Himachal Pradesh and Uttranchai ).
• Minimum area requirement for SEZ exclusively for services is 100 hectares.

3. PORT/AIRPORT BASED SEZs

• Minimum area requirement is 100 hectares.

4. FREE TRADE AN D WAREHOUSING ZONES (FTWZ}

• Minimum area requirement is 40 hectares with a built-up area of 100,000 sq. meters.

Benefits/Incentive/Facilities available for SEZ enterprises

• Exemption from customs / excise duties for development of SEZs for authorized operations approved by the BOA
• Income Tax exemption on export income for 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)

Facilities / Incentive to SEZ Developer

100% FDI allowed for:

(a) Townships with residential, educational and recreational facilities on a case to case basis,

(b) Franchise for basic telephone service in SEZ.

• Income Tax benefit under ( 80 IA ) to developers for any block of 10 years in 15 years
• Duty free import/domestic procurement of goods for development, operation and maintenance of SEZs.
• Exemption from Service Tax /CST.
• Income of infrastructure capital fund/co. from investment in SEZ exempt from Income Tax
• Investment made by individuals etc in a SEZ co also eligible for exemption u/s 88 of IT Act
• Developer permitted to transfer infrastructure facility for operation and maintenance.
• Generation, transmission and distribution of power in SEZs allowed
• Full freedom in allocation of space and built up area to approved SEZ units on commercial basis.
• Authorized to provide and maintain service like water, electricity, security, restaurants and recreation centers on commercial lines.

Obligation of the Unit under the SEZs Scheme

• SEZ units have to achieve Positive Net foreign Exchange earning; a Legal Undertaking is required to be executed by the unit with the Development Commissioner.
• The units have to provide periodic reports to the Development Commissioner and Zone Customs.
• The units are also to execute a bond with the Zone Customs for their operation in the SEZ.
• Any company set up with FDI has to be incorporated under the Indian Companies Act with the Registrar of Companies for undertaking Indian operations

STP Scheme

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The Software Technology Park (STP) scheme is a 100% export oriented scheme for the development and export of computer software & services using data communication links or in the form of physical media including the export of professional services. The major attraction of this scheme is single point contact service to the STP units.

The customer premises in India is connected to their client located abroad by gateway which is located at STPI’s Centres through a radio link ,using either point to point or point (CDMA) to multi point radio (TDMA) Link. This facilitates any company operating in India or abroad connected to Internet, and to access SoftNET. Today all major software exporters in India are customers of Softnet (STPI-Datacom).

We aim at making India the most preferred country in the world for all types of software resources and services.

The concept of STP Scheme was evolved in 1991 and enunciated the following objectives:

• To establish and manage infrastructure resources such as Data Communication facilities, Core Computer facilities, Built-up space and other common amenities.
• To provide ‘single window’ statutory services such as Project approvals, import certification software valuation and certification of exports for software exporters.
• To promote development and export of software services through technology assessments, market analyses, market segmentation and marketing support.
• To train professionals and to encourage design and development in the field of software technology and software engineering.

STP Scheme Benefits & Highlights

• Approvals are given under single window clearance scheme.
• 100% Income Tax Holiday as per section 10A of the IT Act.
• 100% Customs duty exemption on imports
• Equipment can also be imported on loan or lease basis.
• A company can set up STP unit anywhere in India.
• 100% Foreign Equity is permitted and approved by jurisdictional Director of STPI.
• All the imports of Hardware & Software in the STP units are completely duty free. All relevant equipment/goods including second hand equipment can be imported (except prohibited items)
• Unit shall be a positive net foreign exchange earner. Net Foreign Exchange Earnings (NFE) shall be calculated cumulatively in blocks of five years, starting from the commencement of production
• Use of computer system for commercial training purposes is permissible subject to the condition that no computer terminals are installed outside the STP premises.
• Green card enabling priority treatment for Government clearances / other services.
• The sales in the Domestic Tariff Area (DTA) shall be permissible up to 50% of the export in value terms.
• STP units are exempted from payment of corporate income tax (Condition apply)
• The capital goods purchased from the Domestic Tariff Area (DTA) are entitled for benefits like exemption of excise Duty & reimbursement of Central Sales Tax (CST).
• Capital invested by Foreign Entrepreneurs, Know-How Fees, Royalty, Dividend etc., can be freely repatriated after payment of Income Taxes due on them, if any.
• Repartition of foreign currency for payments can be freely done.
• Software units may also use the computer system for training purpose (including commercial training).

Additional Benefits according to different State Government IT Policy.

• Sales Tax Exemption
• Stamp duty Wavier.
• Electricity duty exemption.
• Octroi / Entry Duty Exemption
• Property Tax on par with Residential Premises
• Additional FSI

EHTP Scheme

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An Electronic Hardware Technology Park (EHTP) may be an individual unit by itself or a unit located in an area designated as EHTP Complex. As in the case of STP Scheme, the EHTP Scheme is also administered by the Ministry of Communications & Information Technology.

An EHTP can also be set up by the Central Government, State Government, public or private sector undertakings or any combination of them.

Benefits of EHTP Scheme

• Income Tax holiday as per section 10A of the IT Act
• An EHTP may import free of duty capital goods, raw materials, components and other related inputs. Second hand capital goods may also be imported by EHTP units
• An EHTP may gear up to 100 per cent foreign equity
• Supplies that are effected in DTAs under global tender conditions and payment in forex are also considered as part of relinquishment of export obligation
• An EHTP unit may be setup for both software and hardware in an integrated manner
• EHTP unit may purchase indigenous goods free of excise duty
• EHTP unit may sell Goods/Services in DTA up to 50% of FOB value of exports, subject to fulfillment of positive NFE as per the policy & payment of applicable duties

EOU scheme

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The EOU scheme was introduced in the year 1980 vide Ministry of Commerce resolution dated 31 st December 1980. The purpose of the scheme was basically to boost exports by creating additional production capacity.

The EOU scheme is, at present, governed by the provisions of Export and Import (EXIM) Policy, 1997-2002. Under this scheme, the units undertaking to export their entire production of goods are allowed to be set up. The EOUs can export all products except prohibited items of exports in ITC (HS).

Under the EOU scheme, the units are allowed to import or procure locally without payment of duty all types of goods including capital goods, raw materials, components, packing materials, consumables, spares and various other specified categories of equipments including material handling equipments, required for export production or in connection therewith. However, the goods prohibited for import are not permitted. In the case of EOUs engaged in agriculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture and granite quarrying, only specified categories of goods mentioned in the relevant notification have been permitted to be imported duty-free.

Benefits under EOU Scheme

• Units are exempted from payment of Income Tax
• All the imports to units are customs duty free.
• Exemption from Central Excise Duty for the procurement of Capital Goods and Raw Materials from domestic market.
• Units are entitled to sell the product in local market upto 50% of the products exported in value terms.
• 100% of foreign equity is permissible.
• Reimbursement of Cenral Sales Tax pad on domestic purchases.
• Full Freedom for sub-contracting.
• Exemption from the payment of Electricuty duty.
• EOU unit can be set up at any of over 300 places all over India
• The unit can import capital goods, raw materials, consumables, packing material, spares etc. without payment of customs duty. Similarly, these can be procured indigenously without payment of excise duty. Second hand capital goods can also be imported.
• They have to achieve positive NFE (Net Foreign Exchange Earnings).
• Minimum investment in plant and machinery and building is Rs 100 lakhs for EOU. This should be before commencement of commercial production.
• Fast Track Clearance Scheme (FTCS) for clearances of imported consignments for EOU.
• Generally, all final production should be exported, except rejects upto prescribed limit.
• Sale within India should be on payment of excise duty. The duty  which will be equal to normal customs duty which would be payable on such goods, if imported. However, in certain cases, excise duty payable will be only 50%/30% of normal customs duty payable on such goods if imported into India .
• Sub-contracting of production outside on job work basis is permissible after obtaining necessary permission on annual basis
• Job work for exports is permitted
• Samples can be sold / given free within prescribed limit
• Unutilized raw material can be disposed of on payment of applicable duties
• The unit can exit (de-bond) with permission of Development Commissioner, on payment of applicable duties.
• Central Sales Tax (CST) paid on purchases is refundable (but not local tax).
• Prescribed percentage of foreign exchange earnings can be retained in EEFC account in foreign exchange.
• 100% foreign equity is permissible, except in a few cases.
• Supplies made to EOU by Indian supplier are ‘deemed exports’ and supplier is entitled to benefits of ‘deemed export’.
• Restrictions under Companies Act on managerial remuneration are not applicable.
• No restrictions on External Commercial Borrowings.

BIO-TECHNOLOGY PARK SCHEME

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Biotechnology is a fast emerging sector and is expected to play a key role in the new economy. India has many comparative advantages in terms of knowledge, skills, R&D facilities and costs in the sector. The institutional infrastructure in the country provides the basic foundation for these strengths to translate into business opportunities. India has a biotech agenda, to make it possible all the stakeholders of this sector need to have a common goal. The government, industry, academia, public research, and funding agencies all need to work hand in hand. They need to be competitive, collaborative, and cohesive. They need to strike the right balance between public welfare and company welfare.

Biotechnology Administration in India

As a developing nation, India has recognised the role of biotechnology as a tool for growth and advancement of various sectors such as agriculture and health. Realising the immense potential of biotechnology, India began its initiatives in this sector in the 1980s. The Sixth Five Year Plan (1980-85) laid emphasis on biotechnology development. The plan proposed to develop and strengthen capabilities in areas such as immunology, genetics, communicable diseases, etc. Since then, there have been multiple developments in the field of biotechnology in India . The various institutions responsible for administering the biotechnology industry in India include the following:

Government Bodies– The Department of Atomic Energy (DAE), the Department of Biotechnology (DBT), the Department of Science and Technology (DST) and the Department of Scientific and Industrial Research (DSIR) are the government bodies.

Affiliated Bodies– The University Grant Commission (UGC), the Indian Council of Medical Research (ICMR), the Indian Council for Agriculture Research (ICAR), and the Council of Scientific and Industrial Research (CSIR) are independent bodies affiliated to the Ministry of Human Resource Development, the Ministry of Health, the Ministry of Agriculture, and the Ministry of Science and Technology, respectively.

Policy Initiatives

The union government as well as the state governments have taken various initiatives to boost biotechnology in India . Several state governments including Karnataka, Tamil Nadu, Andhra Pradesh, Maharashtra and Delhi have taken initiatives to encourage entrepreneurs to set up biotech industries in their states.

Some of the key steps taken include:

• announcing a separate Biotechnology Policy for states as a recognition of the importance of the sector as a key growth area;
• setting up of exclusive Biotechnology Parks;
• instituting Task Forces with experts to guide them on policy issues.

Indian Biotechnology Industry – An Overview

The Indian biotechnology industry accounted for a 1.86 percent contribution worth INR 4,745 crores to the USD 91.0 billion global biotechnology industry in 2004-05. The Indian biotechnology industry registered an annual growth rate of 36.55 percent over INR 3,475 crores in 2003-04. The Indian biotechnology industry grew at a CAGR of 43.5 percent during the period 2002-05

The Indian Biotechnology is represented by the following five segment

• BioAgriculture – The BioAgriculture sector comprises plant-derived pharmaceuticals, biotechnological development in crops and livestock, marine science, and forests.
• BioIndustry – The BioIndustry sector comprises biotechnologically developed products such as enzymes, bio-instrumentation and bioprocess equipments. Bio-instrumentation includes surgical and medical instruments.
• BioInformatics – BioInformatics or computational biology refers to the use of multiple techniques, including applied mathematics, computer science, information technology, Technology is used in multiple research areas such as comparative genomics, gene expression analysis, high-throughput image analysis, modelling of biological systems, protein expression analysis, sequence analysis, structure prediction, etc.
• BioPharmaceuticals – Biopharmaceuticals may be defined as medical drugs that are produced by biotechnology. Biopharmaceuticals usually comprise macromolecules, which are created through genetic manipulation of living organisms using gene cloning, recombinant DNA (gene slicing) or cell fusion technologies. The major thrust areas in biopharmaceuticals are diagnostics, monoclonal antibodies, oligonucleotides, recombinant proteins and vaccines.
• BioServices – BioServices comprises research services provided by contract research organisations (CRO). Examples of such organisations operating in India include Quintiles, Syngene and SiroClinpharm. Biotechnology in India can be divided into three broad areas – human and animal health care, agricultural, and industrial.

Market Growth

During 2004-05, the Indian Biotechnology industry grew at 36.55 percent. The BioPharmaceuticals segment grew by approximately 29.72 percent, primarily due to the vaccines market. The BioAgriculture segment grew at a rate of 153.85 percent, driven by the presence of two Bt-cotton companies, Mahyco-Monsanto and Rasi Seeds, followed by the BioServices segment with a growth of 54.55 percent. The BioIndustry segment also registered a strong growth rate of 35.45 percent.