Special opportunity investment

One-window operations and availability of utilities make SEZs attractive for investment

Special opportunity investment

The Special Economic Zones Act was promulgated on September 13, 2012. Under this law, enterprises operating in Special Economic Zones (SEZs) have a 10 year income tax holiday and are allowed a one-time duty-free plant and equipment import. The waiver in various taxes comes to approximately 27 percent of the investment.

Under the law, the supply of electricity and gas till the zero point of the zone is the responsibility of the federal government. The provincial government is responsible for roads, drains, water supply, security and gas and electricity distribution.

The developer assists with plot application, electricity and gas connections, EPA NOC, documentation for duty-free machinery import and any problems the investor may encounter.

Pakistan has 13 notified public SEZs: three in Sindh, eight in the Punjab, one in KP and one in Balochistan. Nine more SEZs are coming up under the China Pakistan Economic Corridor, out of which five are in the construction phase and four in the pipeline. Out of the CPEC SEZs one is in the Punjab, three in Sindh, one in Balochistan, two in KP, one in Islamabad and one in Gilgit-Baltistan.

Plot allotments are governed by SEZ Rules 2013 and Zone Enterprise Admission Regulations 2021. An SEZ committee consisting of the developer as chairman, provincial investment authority, provincial special economic zones authority, federal Board of Investment and the district administration, allots plots and approves name, nature, change of directors, bifurcation, mergers and cancellation of plots. The decisions taken by the SEZ committee surpass those of the developer’s board of directors.

Further details about the SEZs are available on the BOI website, (www.invest.gov.pk). To apply for a plot in an SEZ, the investor should review the SEZ business plan, which includes the location, information on availability and proximity of raw materials, markets, ports, the home base, availability of plots and the lease price.

The minimum plot size is one acre. For a land requirement under one acre, an investor can apply for a plot in a small industry estate. At the second stage, the investor visits the selected SEZ to assess the plot, zone infrastructure, and gas and electricity availability. Once satisfied, the investor is guided by the zone management on how to apply for the chosen plot online via SEZ MIS portal (sezmis.invest.gov.pk).

Information on plots and the zone master plan for each SEZ is available on the management information system (MIS). A company registered with the SECP can log on to the MIS. Other firms and individuals cannot access the MIS.

The pivotal document for an effective application is a comprehensive feasibility report. This report should have the profile of the investor, nature of the business, a projected five-year income statement, the opening balance sheet, a cash flow statement, the organisational structure, the return on investment, a list of machinery and a marketing strategy.

A good feasibility report can be prepared by a qualified chartered accountant firm. Apart from a feasibility report, the SEZ MIS will require uploading scanned copies of the certificate of incorporation of the company, the memorandum and articles of association, the income tax returns, the machinery list, the NTN certificate, the GST number certificate and architectural drawings.

If a document, other than the feasibility report, is not available with the applicant immediately, a declaration on the letterhead is uploaded on the MIS with a commitment to provide the document once the application is accepted.

The secretary of the committee, usually the zone manager, assists the applicant in rectifying and completing the application. The entire process is online requiring no visit to the zone office. The secretary puts a recommendation or reservation on the application and forwards it to the committee members on the MIS.

Once two or more complete applications have been received, the secretary committee convenes a committee meeting with a 7-day notice. The members use this period to go through the applications for discussion at the committee meeting.

At the SEZ committee meeting, the secretary presents all applications. After thorough deliberation, the committee members accept or reject an application. The decision is based on the project feasibility, prior experience, investment size, employment generation and use of modern technology.

Export-oriented, import substituting and foreign direct investment projects are favoured. The meeting minutes are circulated among the members for approval. Usually the outcome of the SEZ committee meeting is communicated to applicants through a letter within two weeks.

The allottees are requested to deposit the plot lease amount through a bank draft. Usually, the amount is paid in instalments according to a formula devised by the developer. Once the payment is received, the investor gets a provisional allocation letter. The allottee also signs an agreement with the developer undertaking that construction will start within six months and the industry will come into production within two years of signing of the agreement. The failure to do so results in the cancellation of the allocation.

After acceptable investment density is achieved and six months of successful commercial production, the developer signs a lease deed and transfers the land title to the investor. Investors who fail to get a plot can appeal to the provincial SEZA. The SEZA reviews the case and sends its recommendation to the BOI. If the appeal is upheld, the BOI sends a letter to the developer to allot a plot to the applicant.

The application process for a plot in an SEZ might look complex. However, it ensures transparency. The government’s focus is on ease of doing business and industrialisation of the country. One-window operations and availability of utilities and infrastructure make the SEZs particularly attractive to the investors.

The writer is the zone manager for Hattar SEZ, KP Economic Zones Development & Management Company, Government of KP

Special opportunity investment