You might have heard about Special Economic Zone (SEZ) in Ahmedabad and you might have thought what this hype about SEZ is and why is everybody excited about upcoming SEZs in India? Well, we have it answered here. So read on.

What is Special Economic Zone (SEZ)?

Setting up a business is difficult. Expanding a business is difficult. Bagging all the profit is never an option. Because there are taxes, regulations, procedures, tariffs, and whatnot. The government wants these businesses to expand for rapid economic growth but it is difficult for the government to ease these taxes and tariffs.

To get the best of Foreign investment and attract global players, this concept was established which is now famously known as SEZ. Full form: Special Economic Zone.

The easiest way to understand is this: SEZ is a foreign territory in a country that follows different economic regulations than other areas of the same country. Most of the regulations are put in there to attract foreign direct investment.

Now you may wonder,

What is Foreign Direct Investment?

Foreign Direct Investment (FDI) refers to any investment made by a company or individual in one country for business interests in another country. When a country or individual conducts business in an SEZ , they typically gain additional economic benefits, such as tax breaks and the ability to pay lower tariffs.

Why are Special Economic Zones (SEZ) treated as foreign territories?

Even though they are located within a country's borders, SEZs are taxed as foreign territory. Why? Because when a non-SEZ company supplies goods or services to an SEZ in India, it is considered an export. And that is the reason that supplies into SEZs are exempt from Goods & Service Tax (GST). They are not under obligation to pay GST.

Now, you may think that when an SEZ in India supplies to anyone, it has to be considered an import, and hence, they have to pay the tariffs and duties. No.

When an SEZ supplies goods or services to anyone, it is considered a regular inter-state supply and is subject to IGST. However, when an SEZ in India supplies goods or services to a Domestic Tariff Area (DTA), it is exempt from paying taxes, but the DTA receiver is liable to pay the taxes.

What is Special Economic Zone in India?

A Special Economic Zone or SEZ is a specially marked territory or enclave within the national borders of a country that has more liberal economic laws than the rest of the country.

How many special economic zones are in India?

There are 265 operational SEZs in India.

Which is the first SEZ in India?

The first Export Processing Zone was set up in Kandla in 1965.

Is SEZ a taxpayer?

SEZs are treated as foreign territory for tax purposes even though they are located within a country’s borders. Supplies into SEZs are exempt from paying GST because they are considered as exports. But, when an SEZ supplies goods/services to anyone, it will be deemed a regular inter-state supply and will attract IGST. However, when an SEZ supplies goods/services to a Domestic Tariff Area (DTA), it is exempt from paying taxes, although the receiver in the DTA has to pay.