Q10. There is a clear acknowledgement that Special Economic Zones (SEZs) are a tool for industrial development, manufacturing and exports. Recognising this potential, the whole instrumentality of SEZs requires augmentation. Discuss the issue plaguing the success of SEZs with respect to taxation, governing laws and administration.

Model Answer:

Introduction

Special Economic Zones (SEZs) are established to promote industrial development, enhance manufacturing capabilities, and boost exports. However, their success is often hindered by various issues, particularly concerning taxation, governing laws, and administration.  

Body

Taxation Issues

1. Complex Tax Structures: Complicated tax regimes deter investors due to multiple layers of taxation, making navigation difficult and reducing attractiveness.
2. Inconsistency in Incentives: Varied tax incentives across regions and shifting government policies create uncertainty, discouraging long-term investment in SEZs.
3. Dual Taxation Issues: Investors face dual taxation risks when cross-border trading occurs, undermining financial benefits intended by the SEZ framework.
4. Revenue Losses for Governments: Tax incentives can lead to significant revenue losses for governments, provoking a public backlash against SEZs for perceived unfairness. 

Governing Laws and Administration

1. Bureaucratic Inefficiencies: Cumbersome administrative processes, long approvals, and excessive paperwork hinder business operations and deter foreign investments in SEZs.
2. Lack of Clarity in Regulations: Vague regulations create compliance confusion, leading to inconsistent enforcement and operational difficulties for businesses within SEZs.
3. Political and Economic Stability: Broader political and economic instability can create uncertainty, reducing investor confidence and deterring investment in SEZs.
4. Limited Infrastructure: Inadequate infrastructure, such as transportation and utilities, hampers operational efficiency and reduces the competitiveness of businesses within SEZs. 

Conclusion

In conclusion, while Special Economic Zones have significant potential for driving industrial development and exports, their success is impeded by taxation issues, bureaucratic inefficiencies, and challenges related to governing laws and administration.  

‍

Instant Mains Evaluation with SuperKalam