ISAS Working Papers

The Institute of South Asian Studies (ISAS) Background Paper describes the evolution and salient features of the Special Economic Zones (SEZ) Act (2005). It notes that substantial benefits accrue to these zones in the form of tax concessions, customs facilitation and policy stability. In return for these benefits, the Act stipulates that commercial units within an SEZ be net foreign exchange earners during a block of five years, beginning from the first year of commercial operations. This means that commercial units within an SEZ should earn US$1 over and above domestic sales during a five-year commercial period. The paper throws light on the definitional issues and regulatory concerns of the developers and commercial units operating within an SEZ. First, there are no clear benchmarks for successful implementation in the Act for developers. This grey area in the Act should redound to the advantage of a Singapore investor because the Ministry of Commerce and Industry (MOCI) will look at these issues on a case-by-case basis. The benchmarks need to be stated in the developer's plan to be approved by the Board of Approval located within MOCI. Profits to be made on the real estate side could be allowed if MOCI is convinced that enough is being done to develop the processing area and for attracting export oriented units. The regulatory checks on successful project implementation of commercial units within an SEZ are unlikely to increase transactions costs if the units are net foreign exchange earners. - Dr Rahul Mukherji is a Visiting Research Fellow at the Institute of South Asian Studies, an autonomous research institute within the National University of Singapore, and an Assistant Professor at the Centre for Political Studies, JNU. He can be contacted at isasrm@nus.edu.sg. Ms Aparna Shivpuri Singh is a Research Associate at the same institute. She can be contacted at isasas@nus.edu.sg. 1