Tax Relief Measures Approved By ECC to Promote Ease Of Doing Business in Gwadar Port And Free Zone

ISLAMABAD: Pakistan on Wednesday approved, in principle, the pending tax concessions for Gwadar Port and its free zone amid the Federal Board of Revenue’s (FBR) refusal to grant sweeping concessions through a Statutory Regulatory Order (SRO).

The FBR largely withdrew some of its objections after a legal opinion from the Ministry of Law established that China Overseas Ports Holding Company Limited (COPHCL), its subsidiaries and their contractors were entitled to the tax holiday for 23 years.

The ECC approved a proposal regarding necessary amendments and exemptions in the Income Tax Ordinance, Sales Tax Act and Customs Act for the Gwadar Port and Gwadar Free Zone, according to a statement issued by the Ministry of Finance.

The ECC asked the Law Division to suggest a way forward for their implementation and bring them up in the next cabinet meeting in consultation with the Commerce Division, Planning Division, Maritime Division, the FBR and the Board of Investment, it added.

Officials said the FBR informed the ECC that tax exemptions could not be given through an SRO and the government would have to amend the laws either through a Presidential Ordinance or introducing a supplementary finance bill in parliament.

Adviser to Prime Minister on Commerce and Industry Abdul Razak Dawood warned the government about adverse implications of the sweeping tax concessions including for the domestic industry. He was of the view that the imported material may be sold outside of the Gwadar Free Zone.

Adviser to Prime Minister on Institutional Reforms Dr Ishrat Husain advised the government to grant the concessions, which Pakistan was bound to give under the concession agreement to the Chinese operators and businesses to be established in the free zone.

The ECC endorsed tax exemptions for the businesses to be set up in the Gwadar Free Zone and to contractors and sub-contractors of the Chinese firms working on the Gwadar Port and Gwadar Free Zone.

The FBR did not agree to at least four concessions like income tax concessions for the contractors, exemption from income tax certificates and also did not give its consent for opening a duty-free shop in the Gwadar Free Zone.

This month, the National Development Council (NDC) – a joint military and civilian body – gave directives for granting tax concessions to the business units that would be set up in the Gwadar Free Zone under the China-Pakistan Economic Corridor (CPEC).

China is developing the Gwadar Port as a strategic and commercial hub under its Belt and Road Initiative.

In February 2013, COPHCL took over operations of the port from a Singaporean company. The concession agreement included a tax holiday for both the Gwadar Port operators and the businesses being set up there.

What COPHCL will get

The ECC endorsed sales tax and federal excise duty exemptions on the import of machinery, equipment and materials either for use in the Gwadar Free Zone or for exports, subject to the condition that all such imports were made by investors of the free zone. The exemption will be applicable after legal approval.

The plant, machinery and equipment to be used for construction and operation of the Gwadar Port and development of the Gwadar Free Zone were also exempted from sales tax.

The ECC approved income tax exemption for the Gwadar Free Zone on the income of operating companies from port operations. The income tax holiday was also extended to China Overseas Port Holding Company Pakistan Private Limited, Gwadar Marine Services and Gwadar Free Zone Company.

The Customs Department withdrew its objections to giving concessions to the contractors and sub-contractors of the Gwadar International Terminal Limited and Gwadar Marine Services. It told the ECC that the objections had been withdrawn on the basis of legal opinion provided by the Ministry of Law and Justice.

The FBR also withdrew its objections to giving tax concessions to “all visiting ships including foreign and local and fishing vessels at the Gwadar Port”, again on the basis of interpretation of the Ministry of Law.

The ECC approved tax exemptions for the businesses to be established in the Gwadar Free Zone area for a period of 23 years with effect from July 2016 on their packaging, distribution, stuffing and de-stuffing, CFS, container yard, warehousing including cool and cold rooms, transshipments, labelling, light-end assembly, re-assembly, imports, exports and their value addition and all related commercial activities.

The FBR did not support the proposal to extend the tax holiday period to 40 years from 23 years.

Other decisions

The ECC directed the Finance Division to release one-month salary amounting to Rs355 million for June for the employees of Pakistan Steel Mills (PSM) and further authorised it to arrange payment of the projected net salary of Rs4 billion to the PSM employees for financial year 2019-20 to be disbursed every month.

Similarly, the ECC approved a proposal for payment of Rs128 million in salaries to the employees of Pakistan Machine Tool Factory (PMTF) for the period February to May 2019 and directed the Ministry of Industries and Production to hold a meeting with the Strategic Plans Division (SPD), Commerce Division, Sindh Building Control Authority and Sindh Revenue Board to finalise a plan to hand over PMTF to the SPD after clearance of all liabilities.

The ECC approved a proposal for reflection in electricity bills of a subsidy by the government of Sindh for 4,514 consumers of Taluka Islamkot in terms of payment of all charges of consumers using 100 or lesser units of electricity on actual charges as well as a flat subsidy of Rs800 to be given to domestic consumers using more than 100 units.

The meeting decided that in case the Sindh government failed to pay the subsidy in any future situation for a period of three months, the same amount be deducted at source by the federal government.