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October 20, 2019

CPEC project: SEZs’ foreign companies may be given 100pc ownership

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October 20, 2019

ISLAMABAD: The PTI-led government is all set to allow 100 percent ownership for foreign companies going to invest in Special Economic Zones (SEZs) under China Pakistan Economic Corridor (CPEC).

The proposed incentives for SEZs included income tax exemptions, no taxes on non-residents and income tax exemptions for expatriates till 2040.

In a meeting held among different ministries/divisions and FBR for finalising incentives for SEZs, a threadbare discussions showed that there was proposal to allow 100 percent foreign ownership and no minimum investment requirement for upcoming SEZs because these incentives are not part of present SEZ Act.

The meeting decided that it should be made part of the existing SEZ Act, at least for those sectors, which have been notified by the government. The meeting also asked for sharing justification of sectors, which could not be included for 100 percent foreign ownership.

The meeting discussed the issue that there should be no taxes on non-resident’s other income sources of enterprises including property, investments including profit on debt, dividends and capital gains if it constitutes 5 to 10 percent of annual gross revenue. It was decided that both FBR and Board of Investment (BOI) will get back on this point after completing their internal discussion.

It was proposed that this clause for 100 percent exemption on import duties on plant and machinery for 10 years to be granted. This incentive may be applied to only capital expenditure but exclude Balancing, Modernization Replacement (BMR) for machinery.

It also came under discussion that before the revision of the SEZ Act, the word “Equipment” was also part of the older version of this Act, but in revised Act 2015 “Equipment” was excluded and now only plant and machinery is included. However. It was suggested that equipment may he included.

The meeting discussed that there will be no turnover tax for export companies; 25 percent corporate tax exemption beyond 23 years and 12 years (total 35 years if exports are more than 75 percent of gross revenue); no income tax for expatiates till 2040 and 100 percent tax exemption on local sourced raw material used for export/import substitution sectors. It was decided that FBR would share its response after internal consultation.

The corporate tax exemption for 23 years from certain time was proposed that the same should be provided for SEZs as FBR has already agreed to a concession agreement for Gwadar Port & Free Zone.

Now the FBR will send their response on this proposition after consultation with all the stakeholders.

With regard to incentives provided to bonded warehouses and customs facilities, ready to use offices, light industrial units, warehouses, it was told that all these facilities are included in the rules but the bonded warehouse facilities are missing.

It was decided to incorporate all these incentive details including bonded warehouse facility in the SEZ Act, to reduce complexity and for better comparative advantage.

It was suggested in the discussion that concession agreement for Gwadar might have approval of Board of Approval (BoA). BOI agreed to this suggestion but they told that Ministry of Ports and Shipping has some reservation. It may be requested to Ministry of Ports and Shipping to share their reservation to resolve this issue.

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