How GIFT City is Different from SEZ (Special Economic Zone)

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GIFT City (Gujarat International Finance Tec-City) and Special Economic Zones (SEZs) are two significant economic models designed to boost trade, investment, and economic growth in India. While both serve as economic catalysts, they operate under different frameworks and cater to varied industries. Understanding the distinctions between GIFT City and SEZs is crucial for investors, businesses, policymakers, and homebuyers.

Table of Contents

What is GIFT City?

GIFT City is India’s first operational greenfield smart city and an international financial services hub, developed to attract global businesses and financial institutions. It serves as a financial centre with advanced infrastructure, promoting innovation in financial services and technology.

Read More: GIFT City – Everything You Should Know!

Location and Background

GIFT City is strategically positioned between Ahmedabad and Gandhinagar, making it easily accessible to key cities in India. The city is part of India’s broader vision to create a global financial hub akin to Singapore or London.

Key Features and Objectives

GIFT City offers a blend of commercial, residential, and social spaces – all powered by state-of-the-art infrastructure. Its key objectives include fostering financial services, IT sectors, and international businesses within a regulated environment. It has smart city features, including automated waste management, centralised cooling system, and efficient water & power management.

Regulatory Framework Governing GIFT City

GIFT City operates under the regulatory purview of the International Financial Services Centres Authority (IFSCA), which governs its financial services. The city also enjoys favourable tax incentives, making it an attractive destination for international businesses and financial institutions.

What is an SEZ (Special Economic Zone)?

A Special Economic Zone (SEZ) designates a geographically specific area within a country that provides special economic regulations differing from the rest of the country. SEZs primarily aim to promote exports and attract foreign direct investment (FDI). They offer tax incentives and a conducive business environment.

Historical Background and Evolution

The concept of SEZs in India dates back to the early 2000s when the government introduced the SEZ Act, 2005. This move was inspired by the success of similar zones in countries like China. Over the years, SEZs have evolved to become major drivers of export growth and industrialisation in India.

Key Features and Objectives

SEZs offer several advantages, including tax exemptions, simplified customs procedures, and relaxed regulatory environment. The primary objective of SEZs is to promote export-oriented industries, create jobs, and attract foreign investment.

Regulatory Framework Governing SEZs

The SEZ Act of 2005 governs SEZs in India, providing a legal framework for establishing, developing, and managing them. Various government bodies, including the Ministry of Commerce and Industry, oversee the zones to ensure compliance with regulations while enjoying the benefits they offer. Some of the most prominent SEZs in India are Manyata Embassy Business Park SEZ, Maharashtra Industrial Development Corporation SEZ, and GIFT Multi-service SEZ.

Key Differences Between GIFT City and SEZ

Regulatory Framework

  • GIFT City: GIFT City operates under the International Financial Services Centres Authority (IFSCA), a unified regulator specifically governing financial services and activities within the city. This regulatory framework is designed to meet international standards, allowing GIFT City to function as a global financial hub. Additionally, it enjoys special provisions under the SEZ Act and the Companies Act, providing flexibility in financial operations.
  • SEZ: Special Economic Zones (SEZs) are regulated by the SEZ Act 2005, and are overseen by various government bodies, primarily the Ministry of Commerce and Industry. SEZs operate under a framework designed to promote exports, with a focus on providing simplified customs and duty regulations – along with other benefits that facilitate export-oriented activities.

Focus and Objectives

  • GIFT City: GIFT City is primarily focused on financial services, IT sectors, and related activities. Its objective is to become a leading international financial centre that competes with global hubs like Dubai, Singapore, and London. The city aims to attract financial institutions, technology firms, and businesses looking for advanced infrastructure and a conducive regulatory environment.
  • SEZ: On the other hand, SEZs cater to a broader range of industries – including manufacturing, export-oriented units, and various service sectors. The primary objective of SEZs is to boost exports, generate employment, and attract FDI across diverse sectors. SEZs are crucial in driving industrial growth and export-led economic development in India.

Taxation and Incentives

  • GIFT City: It offers a range of tax benefits, including exemptions on various taxes such as GST, stamp duty, and dividend distribution tax. Additionally, there are special incentives for businesses operating within the International Financial Services Centre (IFSC), such as 100% tax exemption for the first 5 years and 50% exemption for the next 5 years.
  • SEZ: SEZs offer significant tax exemptions – including exemption from customs duties, excise duties, and income tax for a specified period. These incentives aim to attract export-oriented businesses and help them grow. The benefits also include exemptions from service tax and other local levies, making SEZs attractive for manufacturers and exporters.

Infrastructure and Development

  • GIFT City: GIFT City stands out with its focus on world-class infrastructure, including smart city features like automated waste management, centralised cooling systems, and efficient energy management. The development plans for GIFT City include commercial, residential, and social spaces – all integrated within a technologically advanced environment that supports financial services and IT sectors.
  • SEZ: SEZs typically focus on providing the necessary infrastructure to support manufacturing and export-oriented industries. This includes setting up industrial parks, warehouses, and logistical facilities. While SEZs may not match the high-tech infrastructure of GIFT City, they offer essential services that cater to the needs of export-driven businesses.

Operational Model

  • GIFT City: GIFT City operates as a self-sustaining financial services hub with its own governance and management structure. The operational model aims to provide ease of doing business to companies operating within the city through streamlined processes and support systems. The city’s management focuses on creating an environment conducive to global financial operations, with a strong emphasis on innovation and technology.
  • SEZ: SEZs operate under a framework that simplifies business operations, particularly for export-oriented units. SEZ management and governance focus on facilitating trade, reducing regulatory burdens, and providing businesses with necessary support to thrive in a competitive global market. Private developers or government agencies often manage SEZs, ensuring a balance between regulatory compliance and operational efficiency.

International Relations and Trade

  • GIFT City: It positions itself as an international financial centre, attracting global businesses and financial institutions. International trade centres around financial services, including banking, insurance, and asset management. The strategic location and regulatory environment make it a key player in facilitating cross-border financial transactions and investments.
  • SEZ: SEZs are primarily focused on facilitating exports and international trade across various sectors. They play a crucial role in international relations by increasing India’s export capabilities and strengthening its position in global markets. SEZs provide a platform for businesses to engage in international trade, by offering favourable conditions for production, processing, and export activities.

Read More: Why is GIFT City A Game Changer for NRI Investors?

Future Prospects

GIFT City: Growth Potential and Future Plans

GIFT City continues to attract global financial institutions and businesses, positioning itself for significant growth. With ongoing infrastructure development and expanding financial services, it is expected to play a crucial role in positioning India as a global financial & technological hub. Its smart city features and favourable regulations are likely to drive its future success.

SEZ: Evolution Trends and Challenges

SEZs are evolving with a focus on enhancing export competitiveness and diversifying into new sectors like IT and services. However, challenges such as regulatory hurdles and global economic shifts may impact their growth. Future prospects will depend on reforms and the ability to adapt to changing global trade dynamics.

Conclusion

GIFT City is a financial services hub with advanced infrastructure and specific regulations. SEZs focus on manufacturing and exports with broader industry applications. Businesses in financial services or IT may find it more attractive. However, manufacturing and export-driven companies might benefit more from SEZs due to their tax advantages and established frameworks.

GIFT City offers a modern, integrated approach with a strong focus on financial & tech services, making it a competitive alternative to traditional SEZs. The choice between GIFT City and SEZ depends on the business sector and long-term goals, with both models offering distinct advantages.

FAQs

1. What is GIFT City and what are its main objectives?

GIFT City is India’s first planned greenfield smart city and international financial services hub; its main objectives are attracting global financial institutions and fostering innovation in financial services and technology.

2. How does GIFT City differ from a traditional SEZ?

GIFT City differs from a traditional SEZ by focusing on financial services and IT with advanced infrastructure, while SEZs primarily cater to manufacturing and export-oriented industries with broader sector applications.

3. What sectors are focused on in GIFT City?

Sectors focused on in GIFT City are financial services, IT, fintech, and related industries, positioning it as a global financial hub.

4. What sectors are typically found in SEZs?

Sectors typically found in SEZs are manufacturing, export-oriented units, IT, and diverse service sectors aimed at promoting exports and industrial growth.

5. What are the key tax benefits offered in GIFT City?

Key tax benefits offered in GIFT City are exemptions on GST, stamp duty, and income tax, along with special incentives for businesses in the International Financial Services Centre (IFSC).

6. How do tax incentives in SEZs compare to those in GIFT City?

Tax incentives in SEZs are exemptions on customs duties, excise duties, and income tax for export-oriented businesses, while GIFT City offers more focused financial incentives.

7. What infrastructure features set GIFT City apart from SEZs?

Infrastructure features that set GIFT City apart from SEZs are smart city elements such as automated waste management, centralised cooling, and high-tech infrastructure, while SEZs focus on basic industrial and logistical infrastructure.

8. What is the regulatory framework governing GIFT City?

The regulatory framework governing GIFT City is provided by the International Financial Services Centres Authority (IFSCA), that offers a specialised environment for financial services.

9. How does the regulatory framework for SEZs differ from that of GIFT City?

The regulatory framework for SEZs differs from that of GIFT City, as they are regulated by the SEZ Act 2005 with oversight from the Ministry of Commerce and Industry, focusing on export facilitation and simplified customs procedures.

10. What are the main benefits for businesses operating in GIFT City?

The main benefits for businesses operating in GIFT City are tax incentives, advanced infrastructure, streamlined regulatory framework, access to global financial markets, and advanced housing solutions for employees & professionals.

11. What are the advantages of setting up a business in an SEZ?

The advantages of setting up a business in an SEZ are significant tax breaks, simplified customs procedures, and conducive environment for export-oriented businesses.

12. How do GIFT City and SEZs contribute to India’s economic growth and international trade?

GIFT City contributes to India’s economic growth by enhancing multiple sectors including financial services, while SEZs boost exports and industrial growth. Both play key roles in driving development and global trade participation of the country.

Fonte: SOBHA | Foto: Reprodução/SOBHA

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