Senate Special Committee on CPEC Assesses Incentive Packages for Special Economic Zones (SEZs)
The government is currently reviewing the incentives offered to Special Economic Zones (SEZs) within the framework of the China-Pakistan Economic Corridor (CPEC) and has initiated a consultative process to address outstanding issues, according to insider sources.
Officials from the Board of Investment (BOI) have revealed that there was a lack of alignment between the initial CPEC conception and the practical challenges on the ground. Consequently, they are now reevaluating the SEZ Act of 2012 to provide SEZs with robust legal support and enhanced incentives.
Progress has been made in three SEZs—Rashakai and Nowshera in Khyber Pakhtunkhwa, Allama Iqbal Industrial City in Faisalabad, and Dhabeji SEZ in Thatta—under CPEC. However, these SEZs are yet to be officially inaugurated.
The Federal Government has chosen nine locations, as suggested by provincial governments, for SEZ development. The government proactively engaged with Chinese counterparts to identify the necessary benefits and concessions. They conducted a comparative analysis with other regional countries to ensure competitiveness and to foster long-term benefits.
Prime Minister Imran Khan made legislative changes before his visit to China in October 2019 to address pending issues regarding tax concessions for Gwadar Port and Gwadar Free Zone. It's important to note that these tax concessions apply exclusively to the Gwadar zone and are distinct from the prioritized SEZs established under the 2012 Act, for which a tax incentive package has yet to be finalized.
Furthermore, the government has not resolved the concerns of domestic investors who had been promised a 10-year income tax holiday under the SEZ Act of 2012. As these industrial units prepare to commence production, the Federal Board of Revenue (FBR) has declined to grant a blanket income tax holiday. The FBR insists on a 1.5 percent minimum income tax, based on the units' sales, which investors argue will undermine the 10-year corporate income tax holiday commitment.
The SEZs Act of 2012 provides a one-time exemption from all customs duties and taxes on capital goods imported for SEZ development, operation, and maintenance. Additionally, it grants a five-year tax exemption on income generated from SEZ development and operation.
For Zone Enterprises, there is a one-time exemption from customs duties and taxes on imported capital goods used within the SEZ. Similarly, an income tax exemption for ten years (until June 30, 2020) and an additional five-year exemption beyond that date serve as incentives for investors.
To further facilitate SEZ operations, the BOI intends to establish a one-window facility within the SEZs and provide dry port facilities to streamline imports and exports.