Comparative study of Indian and Thailand

SEZ.

OVERVIEW

INDIA• The Government of India had in April 2000 announced the

introduction of Special Economic Zones policy in the country, deemed to be foreign territory for the purposes of trade operations, duties and tariffs. As of 2007, more than 500 SEZs have been proposed, 220 of which have been created

• Currently, India has 1100 units in operations in functional SEZs, each an average size of 200 acres (0.81 km2). 8 Export Processing Zones (EPZs) have been converted into SEZs. These are fully functional. All these SEZs are in various parts of the country in the private/joint sectors or by the State Government. But this process of planning and development is under question, as the states in which the SEZs have been approved are facing intense protests, from the farming community, accusing the government of forcibly snatching fertile land from them, at heavily discounted prices as against the prevailing prices in the commercial real estate industry.

List of SEZ’s• Sricity (SEZ), (Andhra Pradesh) w• Hyderabad (Andhra Pradesh) • Polepally (Andhra Pradesh) • Visakhapatnam (Andhra Pradesh) w• Velankani SEZ, (Chennai) (http://www.velankanisez.com) • Ahmedabad, Baroda, Kandla and Surat (Gujarat) • Cochin (Kerala) w• Pithampur (Madhya Pradesh) • Nagpur also refer MIHAN, Pune and SEEPZ in Mumbai (Maharashtra) w• Chennai, Ilandaikulam Madurai, Nanguneri and Tirunelveli (Tamil Nadu) w• NOIDA, Greater NOIDA (Uttar Pradesh) UP w• Falta (West Bengal) w• Bangalore [Karnataka] • Kensington [Powai, Mumbai] w• Mangalore (Karnataka)

TAHILAND

Thailand has been very aggressive in setting up the appropriate infrastructure and incentives to attract investment and the results have been clearly positive. The entire country functions as an economic zone in that incentives are available throughout the nation. The levels of the incentives are differentiated by what Thailand’s Office of the Board of Investment (BoI)terms “zones”. These zones are groups of provinces in which investors are qualified to receive incentives which are inversely proportional to the province’s stage of economic development i.e. with the greatest incentives available in the poorer provinces. There is a network of Industrial Estates and Parks that serve within this report as a proxy for what has been defined as an SEZ, though they are not considered as such by the Thai government.There are 34 Industrial Estates, including EPZs, which are developed with government involvement through the Industrial Estates Authority of Thailand (IEAT). Of these, 12 are wholly owned by IEAT and 22 are majority owned and managed by private firms. Industrial Parks are developed entirely by the private sector without IEAT involvement and there are currently around 20 of them

List Of SEZ’s

• Hemaraj Land And Development Public Co. Ltd. • Sinsakhon Printing City and Industrial Estate • AMATA Industrial Estates • Hi-Tech Industrial Estate, Ayutthaya • Rojana Industrial Park • Global Utilities Service Co. Ltd. (GUSCO) • Gateway City Industrial Estate • Ticon Industrial Connection Public Co. Ltd. • Thai-Asia P.E.Pipe Co. Ltd. • QDot - Clean Solutions

LAND ACQUISITION

INDIA• Land in India is scarce and privately held. • Provincial governments were originally empowered to exercise

eminent domain in forcing land users to sell their plots for SEZ development. The popular uprisings that resulted caused the government to put a moratorium on SEZs to reconsider the land issue. As a result, the revised policy capped SEZ size at 12,355 acres (50 square km) and restricted the government’s ability to force farmers to sell their land.

• Another change was that SEZs were originally only required to have 35% of their land reserved for investors. As this led to charges that SEZs were less industrial development initiatives and more real estate investment vehicles, the government increased the requirement to 50%.

• Within SEZs, individual plots may be leased or purchased by the investor.

THAILAND• Land in Thailand can be privately owned.• Foreign companies can also own land but only if they have

received promotional privileges from the BoI or IEAT.• Investors, including foreign investors, may own the land anywhere

in Thailand if they are promoted by the BoI or IEAT.• For the development of IEAT Industrial Estates, the IEAT may

acquire public lands provided that it compensates the Ministry of Finance for the land cost.

• IEAT also purchases privately owned property from private owners at market prices.

• If a private developer would like to initiate a joint venture with the IEAT, it may contribute its own land or secure it on the market before transferring it to the IEAT as part of its equity contribution.

INSTITUTIONAL MANAGEMENT

INDIA• SEZs in India can be owned and developed by the government, the

private sector, or jointly by both. • The private sector is currently developing over half of the planned

facilities. • The Central government has set up a Special Economic Zones

Authority (SEZA) with the powers to develop zones and state governments have similar authorities.

• The SEZs are under the jurisdiction of state governments, but the ultimate authority is the Board of Approval that has been created by the Central government.

• When a developer proposes a new SEZ, it must submit the plan to the state government which then forwards it to the Board of Approval.

• The Board of Approval makes decisions by consensus and is chaired by the Secretary of the Department of Commerce.

THAILAND• The lead agency in matters of industrial investment is the BoI which

is within the Ministry of Industry.• The BoI is responsible for setting investment policies, executing

investment promotion programs, and administering and monitoring the investment incentives that are provided to investors.

• The BoI also provides incentives to real estate developers for Industrial Estates and Parks.

• The IEAT is also housed within the Ministry of Industry and is involved in either developing, participating in joint ventures, or approving Industrial Estate projects.

• The Industrial Estate and Park network also benefits from private participation from sophisticated developers such as Hemaraj Land And Development PCL and Amata Corporation PCL. Hemeraj has developed six Industrial Estates and Amata has two.

REGULATIONS

INDIA• There is a single window mechanism for developers and enterprises

to set up either SEZs or individual investments.• When a government or private developer wishes to develop a new

zone, they must submit their proposal to the state government or directly to the Board of Approval. If submitted to the state, the state would then provide its recommendations then forward the proposal to the Board. The Board would then have the option to approve, approve with conditions, modify, or reject the proposal. Zone developers are then bound to comply with the rules provided in the SEZ Rules 2006 law.

• For investors wishing to set up an enterprise within a zone, they must submit their proposal to the Development Commissioner who forwards it to the Approval Board. The Approval Board, using requirements prescribed by the Central government, may approve, modify, or reject the proposal. The Approval Board may also revoke the approvals if there is investor non compliance,

THAILAND• Industrial Estates must meet standards set by the government. Total land must

exceed 200 acres (0.8 square km) and 60-70% of that land must be allocated for factory use.

• Beyond that, there are a myriad of standards to ensure that the facility possesses all necessary infrastructure and serves a beneficial economic and social purpose.

• For investors looking to set up manufacturing facilities within Industrial Estates, the IEAT has a number of approval requirements related to land use, construction, and operations. The IEAT has a one-window operation and will actively help investors to obtain information on how to complete the necessary applications. If a firm would like to be granted BoI incentives, it must obtain BoI approval by showing that it meets certain criteria such as having no more than a 3:1 debt to equity ratio, utilizes modern equipment and processes, and has adequate environmental protection systems in place.

• Investments of more than about US$14.5 million must also submit a feasibility study.

• For other regulatory matters, industrial firms must obtain Ministry of Industry approvals for safety and environmental issues. Firms in sectors with a smaller environmental impact are subject to far fewer regulations and many are allowed to skip the licensing process altogether

INCENTIVE

INDIA• The SEZ Act codified a set of fairly generous incentives for all SEZ

developers and investors.• For investors, there is a 100% income tax exemption on export

income for five years and a 50% exemption for the next five years. SEZ developers are exempt from income tax for 10 out of 15 years.

• • They are also exempt from the dividend distribution tax.• • For both enterprises and developers, import and procurement of

goods for development, operation, and maintenance of SEZ units is duty free.

• Enterprises and developers are exempt from the minimum alternate tax, Central Sales Tax, as well as the Service Tax.

• • Commercial borrowing is exempt from maturity restrictions.

THAILAND• The BoI has divided Thailand into four geographic zones, each with

a different set of tax and non-tax incentives.• Zone 1 is the area immediately around Bangkok and receives the

fewest incentives, • Zone 2 is the next concentric circle out and receives better

incentives,• while Zone 3 and Zone 3b encompass the outer provinces and

enjoy the greatest incentives Regardless of whether an investor is located in an Industrial Estate, Industrial Park, or their own independent facility, they can apply for the incentives available in their zone. Going beyond the basic incentives, Thailand has a list of priority industries that are eligible for greater incentives. Most of the priority industries are in higher value added sectors

BoI Incentives in ThailandBOI

Zone

Corporate

Income Tax

Holiday*

50%

Reduction in

Income Tax

Rate for an

additional 5 years

Import Duty

on

Machinery

Import Duty on Raw Material

Double Deduction

on Transport and

Utility Costs

Zone 1 3 years No 50%reduction 1 year exempt No

Zone 2 7 years,3 years outside an IEAT estate

No Exempt 1 year exempt No

Zone 3 8 years Yes if in IEAT Exempt 5 year exempt Yes if in an IEAT

industrial estate

Zone 3b 8 years Yes Exempt 5 year exempt Yes

• Besides BoI incentives, the IEAT provides non-financial incentives to investors in Industrial Estates. These include the ability for foreign firms to own land, for foreigners to obtain long term residence permits, and for ease of currency exchange. For EPZs, IEAT provides duty exemptions on equipment and raw material, exemptions on export duties, and refunds on VAT. Since the BoI incentives include all of the ones offered by the IEAT, plus additional tax incentives, almost all investors in Thailand choose to apply for BoI promotional privileges exclusively.

THANKS