What is SEZ ?

I has to learn the difference between STPI and SEZ. I started reading the following informative articles

How does it differ from STPI? My findings about SEZ are below.

  • A SEZ Unit will be exempt U/s 10AA from 100% Tax exemption for First 5 years after commercial production- & 50% of profits are exempt for the next 5 years (subject to certain conditions)
  • A SEZ unit will be exempt even from payment of MAT.
  • An SEZ unit will be exempt from payment of DDT.  An STPI unit when Distribute dividends to its shareholders will have to pay a Dividend Distribution Tax (DDT).
  • SEZ unit will be exempt from payment of service tax on inputs services. A STPI can pay and get the same refunded
  • The SEZ unit has to be located only in the designated SEZ. A STPI  unit can be located anywhere in India. Custom bonding will be carried out for STPI units so that duty free imported goods can be bonded
  • Minimum area needed to setup SEZ is 10 hectares.
  • There is a strict anti-abuse provisions embedded in section 10AA, which among other things require that SEZ unit should not be formed by:
    • Splitting up or reconstruction of a business already in existence; or
    • Transfer to a new business, of machinery or plant previously used for any purpose

    I do not know who i should check for my doubts on SEZ.

    • Are SEZs suited for small companies? SEZ units have high cost.
    • Does this mean only big IT Companies can easily be part of SEZ? if yes,  how will small companies compete?
    • Exemption from dividend distribution tax to SEZ developers. Why is this given? I would assume that this should be removed as this seems to be a double exemption
    • No company can shift an existing business unit from STPI unit to SEZ unit. It needs to be a different business/new business. Is this fool proof?
    • When IT units should reduce their dependence on govt support for infrastructure?
    • Will STPI units shut shop only to re-invent themselves as SEZ units. Something that the SEZ scheme does not intend to promote.
    • When there is a single master services agreement with a customer and people are working on different projects through independent statements of works (SoW), Can we consider a new SoW (for SEZ business) for the same customer as an independent business activity?
    • What happens when a STP unit employees are transferred to an unit is duly registered under the SEZ scheme, will the tax authorities deny tax holiday benefit  stating that moving people tantamount to reconstruction of an existing business.
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