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October 27,2015

Foreign investors eye rectification in investment law

Irfan Siddiqui
TOKYO: Foreign investors have been awaiting rectification of an error in the law governing special economic zones in Pakistan for the last three years to avail the tax benefits and other incentives in return of investment in the country’s manufacturing sector, sources said.
The sources said the Special Economic Zone (SEZ) Act was promulgated in September 2012, but it has yet to be implemented due to a mistake in its draft prepared by the Board of Investment’s (BoI) team.
Under the law, a foreign investor can bring manufacturing plants and machines in Pakistan without paying any duty, but if they want to sell their products in local markets they have to pay import duties.
“In such a scenario, Japanese, German, Chinese and Korean investors can’t set up industries in Pakistan under the SEZ Act, 2012,” said a source close to the matter.
The source said foreign investors believe that prices of their products could double as compared to the local substitutes because of this and “therefore no investment is coming under this law.”
The sources said last year, finance minister Ishaq Dar assured Japanese investors that the government would rectify this ‘error’ during an investment conference in Tokyo, but nothing has taken place in reality.
SEZs, to be set up by the federal or provincial governments, private sector or under public-private partnership, offer access to high-quality infrastructure, uninterruptible power supply, clearly titled land, public facilities and support services.
In addition, streamlined regulatory enforcement, simpler business and establishment rules, expedited customs administration, and other special administrative and approval procedures are also offered in such zones.
The fiscal benefits include a one-time exemption from custom duties and taxes for all capital goods imported into Pakistan for the development, operations and maintenance of a SEZ (both for the developer as well as for the zone enterprise) and exemption from all taxes on income for a period of ten years.
The provincial SEZ authorities, set up under the law, are required to move the applications received from developers to the BoI, which is to act as the secretariat to the Board of Approvals and the approval committee.
The government was expecting one billion dollars in investment in the manufacturing sector and creation of thousands of jobs for local citizens when the bill was introduced after the advice of the former president Asif Ali Zardari and ex-prime minister Yousuf Raza Gillani.

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