Revenue Division sought permission of the Prime Minister to consider amendments in tax laws relating to tax concessions/exemptions in respect of Gwadar Port and Gwadar Free Zone, under the proviso to Rule 18(6) of Rules of Business 1973, as the matter was of urgent nature. Revenue Division submitted that the projects being undertaken under the auspices of the China Pakistan Economic Corridor are vital for promoting national development, fostering economic growth and protecting the strategic interests of the country.
The Ministry of Maritime Affairs moved a summary before the ECC regarding approval of various exemptions required for the Gwadar Port and the Gwadar Free Zone. The ECC approved the proposals on August 28, 2019, to ensure the removal of various impediments in the implementation of the concession agreement in respect to Gwadar Port and Gwadar Free Zone. The ECC also directed the Cabinet Division to organize a meeting to consult Law and Justice Division for adopting correct legal method for making necessary amendments through SROs/bill in tax laws. The Law and Justice Division on September 21, 2019, has expressed its view that the envisaged tax incentives/concessions to Gwadar port and Gwadar Free Zone cannot be provided through SROs and that it will be provided through a money bill or an ordinance.
The following are proposed exemptions in various laws as approved by the ECC: Income Tax --(i) in terms of clause (126A) of the Part-1 of the second schedule to be Income Tax Ordinance, 2001 China Overseas Ports Holding Limited and its operating Companies, ie, China Overseas Ports Holding Company Pakistan(Private) Limited, Gwadar International Terminal Limited, Gwadar Marine Services Limited and Gwadar Free Zone Company Limited have been conferred exemption from income tax on their income from Gwadar Port operations for a period of 23 years with effect from February 6, 2007. FBR proposed that income tax available to the aforementioned companies also be extended to their operations from the Gwadar Free Zone; (ii) under clause ( 126B) of Part-1 of the Second Schedule to the Income Tax Ordinance, 2001 any profit on debt/ interest income derived by any foreign lender or any local bank having more than 75 per cent shareholding of the government of the State Bank of Pakistan under a financing agreement with the China Overseas Ports Holding Company Limited, is exempt for a period of 23 years with effect from July 1, 2016. FBR proposed that interest income/ profit on debt derived by any foreign lender or any local bank having more than 75 per cent shareholding of the government or the State Bank of Pakistan under a financing agreement with various other operating companies ie China Overseas port Holding Company Pakistan ( Private ) Limited, Gwadar International Terminals Limited, Gwadar International Terminals Limited, Gwadar Marine Services Limited and Gwadar Free Zone Limited may also be granted exemption from income tax; and (iii) Under clause (126 AC) of part-1 of the second schedule to the Income Tax Ordinance, 2001 the income derived by the contractors and subcontractors of the China Overseas Ports Holding Company Limited, China Overseas Ports Holding Company Pakistan (Private) Limited, Gwadar International Terminal Limited, Gwadar Maritime Services Limited and Gwadar Free Zone Company are exempt from Gwadar Port Operations for a period of 23 years from July 1, 2016. The Cabinet has exempted income from taxes of such contractors or subcontractors from Gwadar Free Zone operations.
Sales Tax: The Ministry of Maritime proposed that supply of raw materials, components and goods for further manufacture of goods in the Gwadar Free Zone and also plant, machinery to the manufactures in the Zone be zero-rated for sales tax purposes in the manner as available for manufacturers in Export Processing Zones(EPZs). Initially, FRB did not concur with the proposal on the ground that the benefit is not covered under the Concession Agreement between Gwadar Port Authority and Port of Singapore Authority. However, later keeping in view that the proposal was to be implemented through a Money Bill or Ordinance, it agreed to the proposal. The Law and Justice Division has concurred that the proposal can be implemented through a Money Bill or an Ordinance. Accordingly, Ministry of Maritime proposed to add two serial numbers to Fifth Schedule to the Sales Tax Act, 1990 to provide for zero-rating of goods to be supplied to manufacturers in Gwadar Free Zone.
The exemption in sales tax in relation to ship bunker oil bought and sold to ships visiting Gwadar Port is available under S.No.100A of table-1 to Sixth Schedule to the Sales Tax, 1990. The Ministry of Maritime Affairs proposed that the words 'by the aforesaid operating companies' may be inserted after the words "Gwadar Port" so as to clarify that the exemption shall also be available to the operating companies specified under serial number 100 A. FBR concurred with the proposal and the approval was solicited.
The serial number 100A of table-1 of the Sixth Schedule to the Sales Tax Act, 1990 also provides exemption from payment of sales tax on import of plant, machinery, equipment, appliances and accessories for construction and operation of Gwadar Port and development of Gwadar Free Zone as imported by or supplied to China Overseas Ports Holding Company Limited (COPHCL) and its operating companies. Condition (iii) provides that the goods so imported shall not be sold except without prior approval of the FBR and that in such case sales tax leviable at the time of import shall be paid. The Ministry suggested that instead of requiring payment on import value, the condition be amended to require payment on realizable/ residual value. The Ministry required the Cabinet to approve it.
The Ministry of Maritime Affairs recommended adding a new serial number to table-1 of Sixth Schedule to the Sales Tax, 1900, thereby providing exemption from sales tax on the machinery, equipment, materials and goods imported either for exclusive use within the limits of Gwadar Free Zone, or for making exports therefrom, subject to the condition that such machinery, equipment, materials and goods, are imported by investors of Gwadar Free Zone, and all the procedures, limitations and restrictions as are applicable on such goods under the Customs Act, 1969(Act IV of 1969) and rules made thereunder shall, mutatis mutandis, apply. The Ministry proposed the Cabinet to approve it.
Customs: In order to implement the proposals of Ministry of Maritime Affairs, the following amendments were proposed to be made in the Customs Act, 1969, in First Schedule, in Sub-Chapter-V of Chapter 99 of Pakistan Customs Tariff, against PCT code 9917(3), (a) in terms of PCT 9917(3) (i) equipment and materials(plant, machinery and equipment, appliances and accessories), imported by the concession holder, its operating companies and contractors/subcontractors exclusively for construction and operation of the terminals and free zone area for a period 40 years are exempt from levy of customs duty. Ministry of Maritime Affairs proposed that operating companies of the concessions holder, ie, Gwadar International Terminals Limited and Gwadar Marine Services Limited, their contractors and subcontractors' may also be allowed exemption of customs duty; (b) in terms of PCT 9917(3)(ii), ship bunker oils imported by concession holder for the purposes of supplying fuels and lubricants to the ships used in the port and its terminals for a period of 40 years are exempted from levy of customs duty. FBR proposed that this exemption may be extended to all visiting ships including and local and fishing vessels at Gwadar Port for concession holder; and (c) in terms of PCT 9917(iv), imports for port related business established in the free zone area for a period of 23 years are exempt from the levy of customs duty. FBR proposed that this exemption may be extended to all those business specified under clause 5.2.2 of the Concessions Agreement ie import by the businesses of packaging, distribution, stuffing and de-stuffing, CFS, container yard, warehousing including cool and cold rooms, transshipment, labeling, light end assembly and reassembly, imports and exports/value-added exports. Value-adding of imports, other similar or related businesses activities and such commercial activities as are required to support the free zones to be established in the Gwadar Free Zone area for a period of 23 years from July 1, 2016.