It has been decided to amend the Article-3(n) relating to definition of SEZ to place the SEZ in the custom territory of Pakistan. It was, therefore, recommended by all the stakeholders that summary for the Cabinet may be initiated to amend the Article 3(n) of the SEZ Act. The existing Article 3(n) said: "Special Economic Zone" or "(SEZ)" means a geographically defined and delimited area which has been notified and approved by the BoI. The SEZs shall be outside the customs territory of Pakistan only for the purposes of this Act.
The proposed Article Section 3(n): "Special Economic Zone" or "(SEZ)" means a geographically defined and delimited area which has been 'notified and approved by the BoI. Details revealed that the Special Economic Zones Act 2012 was promulgated to encourage industrial infrastructure in the country. The purpose was to facilitate domestic and foreign investors to make investment in Pakistan by offering them special exemptions and incentives leading to reduced cost of doing business with the help of efficient infrastructure. The Act provided for duty free import of machinery for zone developers as well as zone enterprises. It also provided exemption from Income Tax for a period of 10 years; however, major issue raised by different quarters is definition of SEZ. The Act was passed by fulfilling all constitutional requirements and it took three years to enact it.
Representative of the Federal Board of Revenue stated that neither the Act nor the SEZ Rules specify the scope of the phrase as given in Section 3(n) of the SEZ Act, 2012. Secondly, proposed amendment does not provide rationale for this change. FBR is of the view that the proposed amendments would lead to relocation of industry from non-SEZ Area to SEZs. In case 3(n) is amended as proposed by BoI, then corresponding sections of the Act may also be amended accordingly especially Article 33 and 16 and all taxes shall apply on supplies to SEZ from Pakistan and vice versa. The FBR agreed to amendments proposed with respect to articles 36 and 37 but it did not agree to amendment proposed with respect to new insertion as article 41, as this may override powers already available to various regulating bodies/departments, like Ministry of Commerce regarding Import Policy Order/Export Policy Order, Plant Protection, Climate Change, Drug Regulatory Authority of Pakistan (DRAP), Pakistan Quality Control Authority (PQCA) etc.
Representative of Ministry of Commerce endorsed all amendments except deletion of condition of at least 50 acres of land. He emphasised that SEZ must have a substantial size to accommodate a reasonable number of units at a single place and to help in setting up of complimentary industries at the same place.
Representative of Ministry of Industries endorsed the proposed amendments in principle but also mentioned that granting SEZ status to motor bikes manufacturing company and other enterprises in the zone might put the competitors at a disadvantageous position in the market as the other companies are operating under ordinary regime. Representatives of Ministry of Petroleum & Natural Resources stated that although proposed amendments does not relate to their ministry directly, however, any enterprise of Petroleum sector can invest in any of SEZ and to avoid any complication in future, word capital goods and capital equipment etc need to be defined clearly.
Representative of Finance Division endorsed the view point of FBR. A representative of Ministry of Information Technology supported the view point of most of the stakeholders regarding amendment in the Article 3(n) and also emphasised on the deletion of condition of at least 50 acres of land with an argument that IT sector can start SEZ, generating lot of exports etc on a small piece of land.
BoI clarified that the concept of SEZ is holistic. BoI envisage SEZs as an industrial city with vocational training centers, service industry outlets like banks, insurance offices, post office, auditorium, exhibition halls, food courts, emergency medicare facility recreational centers and residential area etc An SEZs less than fifty Acres will defeat the basic concept and there is no upper limit for SEZ.
Representative of Government of Punjab conveyed their agreement on all proposed amendments. The emphasis was on the lacuna whereby zones were considered outside the customs area of Pakistan. He pointed out that in its current form; the SEZ law is not different from EPZ initiative. He also pointed out that addition proposed in article 37 "subject to verification and approval of the Federal Board of Revenue under the rules made by the BoI needs clarification. Representative of Ministry of Interior informed that although SEZ Act or proposed amendments do not relate to Ministry of Interior directly, however, the success of SEZ initiative inter-alia depends on the provision of foolproof security to investors. Ministry of Interior does not have funds to finance security assignments at various zones to be established all over the country. Ministry of Interior is working with other stakeholders to have exclusive force for the security of China Pakistan Corridor to be funded by the concerned Federal/ Provincial government. On the same pattern an exclusive special force can be established for the security of SEZs.
Representative of Special Economic Zone Authority (SEZA), Government of Sindh supported the amendments in Article 3(n). However, he did not agree with the proposed deletion of 50 acres land as minimum size on the plea that minimum size criteria is essential for effective management of SEZs. Moreover, proposed deletion is against the spirit of law, which focuses on making cluster of industry.
The representative of SEZA, Government of Sindh expressed that proposed amendments in article 36 and 37 are not needed. The Articles given in the existing law serve the purpose, because the main spirit of the law is to facilitate enterprises to start and expand their businesses in the SEZs leading to inflow of more FDI into the country and generation of more employment opportunities for the people of Pakistan. The proposed amendments with special reference to providing only one time exemption to enterprises will defeat the main objectives of the SEZ initiative. In case there is a possibility of any misuse of the incentive then respective SEZAs in consultation with BoI and FBR can device a monitoring mechanism to check and stop the expected misuse of exemption granted to enterprises as per provision existing in the SEZ Act/Rules.
The representative of State Bank of Pakistan has shown his agreement to the proposed amendments except proposed new insertion (Article 41) which might override power given to the bank under banking companies Ordinance. Representative of Government of Balochistan also supported all amendments except new insertion, which requires to be elaborated.
Representative of government of KPK supported the proposed amendments in Article 3(n), 16 and 41. However, in his views, amendments proposed in 36(a) and 37(a) are not appropriate as developers, develop the zone once, while enterprises are required to upgrade/expand their plants etc so they need exemption every time. The articles in, its present form are quite logical / sufficient.
Representatives of Government of Punjab, Ministry of Commerce, and Government of Sindh etc responded that there was a need to define the term "One Time Exemption" and more importantly some monitoring mechanism may be devised to check the misuse of exemption granted to enterprises as per provision existing in the SEZ Act/Rules.
After detailed discussion and deliberation on all the five amendments proposed by the BoI, consensus emerged to amend the Article-3(n) only relating to definition of SEZ to place the SEZ in the custom territory of Pakistan. It was, therefore, recommended by all the stakeholders that summary for the Cabinet may be initiated to amend the Article 3(n) as given below:
3(n): "Special Economic Zone" or "(SEZ)" means a geographically defined and delimited area which has been notified and approved by the BoI. The SEZs shall be deemed to be outside the customs territory of Pakistan only for the purposes of this Act; Proposed section 3(n): "Special Economic Zone" or "(SEZ)" means a geographically defined and delimited area which has been notified and approved by the BoI.