1. !@ # SEZ Policies and Procedures Telecommunication Sector

2. # !@ 2 Special Economic Zones (SEZ)

3. # !@ 3 SEZSEZ Objectives of SEZ  Generation of Additional Economic Activity  Promotion of Export of Goods and services  Promotion of investment from domestic and foreign sources  Employment creation  Development of world class infrastructure  Foreign exchange earnings Countrywide list of SEZ  Notified SEZ – 135 nos.  Formal approvals – 362 nos.  In-Principle Approvals – 176 nos. Status as on 08.08.2007 Status of SEZ Approvals Incentives offered  Exemption from Income Tax & MAT for Developer and Units  Exemption from DDT for SEZ Developers  Exemption from indirect taxes like Customs, Excise, Service Tax, Central Sales Tax, VAT etc.  Duty drawback, DEPB concessions etc.  Exemption from local taxes & levies, electricity, water duties as per State Govt. Policies.  Heralding the future of Industrial development in India.  Engines for India’s economic growth  Exponential employment creation  Enabler of High end technologies  Position India as Manufacturing Hub  Springboard for ensuring India's Success in the comity of Nations Future of SEZ

4. # !@ 4 Road map for making India as a Manufacturing Hub Global Electronics Industry poised to grow exponentially from US$ 950 billion in 2005 to US$ 2100 billion by 2010. India’s electronics industry grows approximately at 11% CAGR (compounded annual growth rate) over the past 5 years. India’s share at US$ 11 billion is very nascent by global standards. Few decades ago, India was primarily treated as Import Hub. Then Industries started importing raw materials, components etc. into India and the assembly of inputs into finished goods started happening in India leading to India becoming a Assembling Hub. Hence to ensure real manufacturing in India, to increase the share of Indian industry in global market, to make India as the preferred Manufacturing place and to make India as the Electronics Hub, we need a clear cut strategy/ roadmap for development of this industry.

5. # !@ 5 Encourage Manufacturing in SEZ Most of the electronic/ telecom products fall under the ITA Agreement and hence attract NIL customs duties. As far as ITA products are concerned, both Direct Imports and imports by SEZ units attract NIL Customs duties i.e. no revenue accrues to Govt. from this transaction. However manufacturing in SEZ acts as a key driver for economic growth, creation of employment opportunities with other spin-off benefits to the economy/ people. Hence to encourage real manufacturing in India and to attract billions of dollars of investments into the Electronic Hardware Manufacturing sector and to generate several thousands of employment, the strategy of SEZ should be fine-tuned by encouraging more Electronic SEZ’s throughout the country.

6. # !@ 6 Encourage Manufacturing in SEZ While importing from aboard by DTA unit, Government gets Customs duties @ 34.472%, as revenue. Direct Imports from abroad by DTA unit DTA unit importing from SEZ While Importing products from SEZ by a DTA unit, Government gets revenue in the form of Customs duty – 34.472%, VAT 4% - 12.5% and profit from the transaction also attracts Income Tax @ 33.99%*. * Income Tax exemption for 10 years is available only for physical export from the SEZ. Manufacturing in SEZ has the twin benefits of  Additional revenue generation to the Government  Multiplier effects on economy like Employment generation, Economic benefits etc.

7. # !@ 7 Value Addition should not suffer duties/taxes ITA products attract NIL Customs duties in respect of direct Imports as well as imports by SEZ units i.e. no revenue accrues to Govt. from this transaction. In case of direct imports, customs duties are payable only on the import transactional value. However in case of goods manufactured in SEZ and sold into DTA, full customs duties are payable at the sale value (including value addition made at SEZ). Taxing value addition happened in the SEZ discourages SEZ manufacturing. The guiding principle of “Only goods/services should be exported and not taxes” should be adhered to strictly.

8. # !@ 8 Encourage Cluster based growth model – Deemed Exports Section 10AA of the Income-tax Act provides for tax deduction only on profits derived from “exports out of India by land, sea, air or by any other mode, whether physical or otherwise;” Though the Central SEZ Act, 2005 recognizes both inter-SEZ and intra-SEZ sales by SEZ Units as part of “Exports” definition, Income Tax Act does not recognize them leading to denial of tax holiday on inter-SEZ and intra-SEZ sales. The definition of Exports under Income Tax Act should be aligned with SEZ Act to allow genuine SEZ units acting as vendors to other SEZ units located in the same or different SEZ to enjoy Income Tax Benefits. SEZ law recognizes deemed exports for computing Net Foreign Exchange – The same analogy should be extended for claiming income tax deduction also. Once implemented, this will lead to vendor-based cluster growth model resulting in development of entire eco-system of component suppliers, research & development, assembly, testing and product delivery happening in India.

9. # !@ 9 Significant Issues of concern Transfer of Assets to SEZ: Current Income Tax provisions (as applicable to SEZ units) allow transfer of plant and machinery up to 20% of the total value. Whereas the current SEZ Rules prohibit any transfer of plant and machinery from DTA into SEZ. This anomaly in legal provisions penalizes the early bird manufacturers who have come to India and made investments under non-SEZ regimes i.e prior to SEZ Act being enacted. This anomaly between SEZ Rules and Income Tax Act needs to be corrected considering the limited availability of space in SEZ’s now. To safeguard the interest of Govt., industrial units set up at least within 3 years may be allowed to transfer upto 20% to SEZ units. Semiconductor Policy The Semiconductor Policy announced by the Government of India should be implemented immediately by announcing the operational guidelines in respect of eligibility, computation of incentives, exit etc. Inverted duty structure The inverted duty structure needs to be studied and rectified especially in the background of surging imports due to Free Trade Agreements. Broad basing ITA products Goods manufactured in SEZ using the combination of Non-ITA products and ITA products should be treated at par with ITA products and should not suffer taxes/duties.

10. # !@ 10 Conclusion India has become a knowledge hub for Services especially a powerhouse for IT & ITES services due to tax benefits and ample support by the Govt. The success model for IT sector can be replicated in Electronic Hardware manufacturing with adequate support of Government. Let us nurture Electronic Hardware Manufacturing in SEZ so that it blossoms and benefits India by way of wealth creation, employment generation and economic growth

11. # !@ 11 Thank You for your kind attention and time