Types of Special Economic Zones
A geographic region within a nation where the financial and economic laws are relaxed is known as a special economic zone (SEZ). Economic laws that are applicable nationwide are relaxed within an area chosen as the special economic zone. The purpose of SEZ is to encourage foreign direct investment by foreign investors. Foreign investors would be ready to invest in an area if and only if the conditions are favorable for their businesses. By creating certain areas as special economic zones where taxes are reduced, financial and environmental regulations are relaxed, governments are able to encourage rapid economic growth.
Special economic zones have been developed in many countries including India. Approximately, there are 3000 special economic zones in 120 countries. In India, the special economic zone act was passed in the year 2005. SEZs were set up in the private, public, or in the joint sector by the state governments with permission from the central government. The onus is on the state government to provide an internationally competitive and comfortable environment for the investors to set up units for manufacturing goods and rendering of services. There are 114 special economic zones in India and they are in Tamil Nadu (20), Karnataka (18), Maharashtra (14), Gujarat (8), Kerala (6), Uttar Pradesh (4), Haryana (3), West Bengal (2), Chandigarh, Rajasthan and Orissa (1).
Special Economic zones are broadly divided into more specific zone types and they are.
1. Export Processing Zones (EPZ)
It refers to an area that allows aggressive economic activity in the form of tax cuts, fiscal incentives, and other benefits to revive weakening export business.
2. Free Zones (FZ)
It is an area where immigration, visa, customs and taxation are relaxed.
3. Free Trade Zones (FTZ)
It refers to a particular area within a country where normal trade requirements such as taxes, tariffs, and quotas are either reduced or relaxed to attract investment.
4. Industrial Parks or Industrial Estates (IE)
Also known as trading estate, it is an area planned for industrial development. A lighter version of industrial park is the business park or the office park, where there are lighter industries such as offices. These areas are located away from the city’s main residential area but close to transport facilities such as highways, airports, railroads and ports.
5. Free Ports
It refers to a special customs area with relaxed customs regulations or no customs duties or controls for transshipment.
6. Urban Enterprise Zones
It refers to an area free of certain local, state and federal taxes and restrictions. Located in the industrial or commercial areas of a city, the sales tax rate within this zone would be half compared to other parts and the incentives would be much higher. This is done to revive the business climate of a city that has been shattered by economic problems.
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