Senate Special Committee on CPEC Reviews Incentives Offered on SEZs

The government is revisiting incentives to Special Economic Zones (SEZs) under the China-Pakistan Economic Corridor (CPEC) and has initiated a consultative process to identify and resolve all pending issues, sources revealed.

Sources in the Board of Investment (BOI) told BR that there was no harmony between legislation and ground challenges at the time the CPEC was conceived. The SEZ Act 2012 is being revisited to give SEZs concrete legal backing and enhanced incentives and benefits. There is progress under CPEC in three SEZs – Rashakai, Nowshera in Khyber Pakhtunkhwa, Allama Iqbal Industrial City in Faisalabad and Dhabeji SEZ in Thatta but these SEZs are yet to be inaugurated.

Federal Government has selected nine locations identified by provincial governments to be developed as SEZs. “Prior to initiating industrial cooperation the government had already begun working with the Chinese on the types of benefits and concessions they would require. We did a comparative study with other countries in the region. We want to give more incentives for all SEZs because the government is targeting long term benefits,” BoI officials informed a Senate Special Committee on CPEC held on September 25, 2019.

Before departure to China on October 8, 2019, Prime Minister Imran Khan approved legislative changes to address pending issues of tax concessions for Gwadar Port and Gwadar Free Zone. The new tax concessions are limited to Gwadar zone as the government has been unable to finalise a tax incentive package for the prioritised Special Economic Zones (SEZs) that are being set up under CPEC. The prioritised SEZs are separate from the SEZs set up under the 2012 Act.

The government has also not yet been able to address grievances of domestic investors, who have invested in the SEZs on the promise of getting a 10-year income tax holiday under the SEZ Act 2012. As these industrial units are set to start production, the Federal Board of Revenue (FBR) has refused to provide a blanket income tax holiday.

The FBR is insisting on charging 1.5 percent minimum income tax, being calculated on sales of these units, which industrialists claim will undermine the 10-year corporate income tax holiday pledge.

Under the SEZs Act 2012, there is a one time exemption from all customs duties & taxes for all capital goods imported into the country for the development, operation and maintenance of an SEZ entity for the developers of the Zones. And exemption from all taxes on income accruable in relation to the development and operation of the SEZ for a period of five years are also extended.

For Zone Enterprises, one time exemption from all customs duties and taxes on imports of capital goods in the SEZ for installation therein is given. Likewise, exemption from all taxes on income for a period of ten years till June 30, 2020 and for five years beyond would provide an incentive to investors.

The BoI needs to provide one-window facility within the SEZs. Likewise, dry port facility in the zones should be provided in order to facilitate imports and exports of goods.