Pakistan approves massive tax exemptions for Gwadar port operators

Published: May 24, 2016
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China is developing the Gwadar port as a strategic and commercial hub under its ‘One-Belt One-Road’ initiative. PHOTO: REUTERS

China is developing the Gwadar port as a strategic and commercial hub under its ‘One-Belt One-Road’ initiative. PHOTO: REUTERS

ISLAMABAD: Pakistan approved on Monday sweeping tax concessions for Chinese operators at the deep-sea Gwadar port and businesses that will operate in the Gwadar Free Zone for up to 40 years to make the Arabian Sea port an important node in Beijing’s ‘One-Belt, One-Road’ strategic initiative.

The Economic Coordination Committee (ECC) of the Cabinet took the decision on a day when Iran, India and Afghanistan signed a trilateral transit agreement to counter the China-Pakistan Economic Corridor (CPEC).

Key decisions: ECC approves 23-year tax holiday for Gwadar Port

The ECC accepted most of the recommendations made by its subcommittee for extending concessions to the China Overseas Ports Holding Company Limited (COPHCL), according to the Ministry of Finance.

China is developing the Gwadar port as a strategic and commercial hub under its ‘One-Belt One-Road’ initiative that promises shared regional prosperity. CPEC is one of many arteries of the ‘One-Belt One-Road’.

In 2013, Pakistan handed over the Gwadar port to the Chinese company by annulling a deal with a Singapore company that could not develop the port after taking over in 2007.  The ECC further approved amendments in the Gwadar Port Concession Agreement for operating and developing the Gwadar port and free zone.

Income Tax

In a major move, the ECC approved a complete income tax holiday for 23 years to businesses that will be established in the Gwadar Free Zone. A Statutory Regulatory Order to that effect will be issued, and the changes will come into force the day the order is issued.

China irked by delay in Gwadar project

Under the move, the concession will extend to contractors and subcontractors and COPHCL companies for 20 years. The ECC has also exempted the COPHCL and its operating companies from paying the minimum 1% income tax.  Moreover, the ECC approved complete exemption from the 12.5% tax on dividend income and withholding tax for the COPHCL, and its operating companies, including the China Overseas Ports Holding Company Pakistan Private Limited, Gwadar International Terminals Limited, Gwadar Marines Services Limited and Gwadar Free Zone Company Limited.

Pakistan has also granted tax exemption on profit on debt generated by those Chinese financial institutions that will lend money for construction and development purposes.

Sales Tax & Excise Duty

The ECC also exempted the COPHCL, its operating companies and contractors from sales tax and federal excise duty. A 23-year exemption from sales tax and federal excise duty has also been granted to businesses that will be established inside the Gwadar Free Zone. However, if these businesses make supplies and sales outside the free zone, they will be subject to taxation.

Customs Duty

Pakistan approved customs duty exemption for the COPHCL, its operating companies, contractors and subcontractors for a period of 40 years on import of equipment, materials, plants, machinery, appliances and accessories for construction of Gwadar Port and the associated Free Zone.

The exemption has also been extended on import of ship bunker oils for supplying fuels and lubricants to ships used in the port and its terminals.

Gwadar port to be operational by 2017: Chinese official

A 23-year duties exemption has been granted on port related businesses to be established in the free zone. The COPHCL can also import vehicles free of any duty.

Ramazan Package

The ECC approved a Ramazan package worth Rs1.75 billion for providing relief to consumers in the holy month this year.  The package offers Rs4 to Rs50 relief on 22 essential items available at Utility Stores Corporation of Pakistan.

The USCs will also provide 5-10% discount on over 1,000 items after making due arrangements with vendors.

Published in The Express Tribune, May 24th, 2016.

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Reader Comments (21)

  • lmao
    May 24, 2016 - 10:02AM

    Even the Chinese govt and provinces don’t provide such incentives to domestic Chinese companies. Even state owned enterprises pay tax. I’m sure the Pakistan government knows or has a vision for something which we don’t understand.Recommend

  • Raj - USA
    May 24, 2016 - 10:16AM

    Here goes most of the income Pakistan was expecting to generate from CPEC. In fact, Pakistan will be spending huge amounts on maintaining the security force of 30000 specially trained commandos and 5000 specially trained navy men. If you recall, Saudis paid $1.5 billion to Pakistan and promised to pay another $1.5 billion, and in return wanted just 10,000 of Pakistan’s regular soldiers which is nothing compared to what Chinese are demanding which is 30,000 specially trained commandos and 5,000 specially trained navy men. How much is it going to cost Pakistan every year to maintain this security force?Recommend

  • riz
    May 24, 2016 - 11:29AM

    There would be enormous Economic activities in the region and Pakistan would become hub of business center which will definitely help in reducing unemployment, better infrastructure, arrival of modern technology/processes, peace & stability and many other allied benefits.Recommend

  • deepu
    May 24, 2016 - 11:42AM

    Chinese are not so generous as poor Westerners, very simple! Recommend

  • OSD
    May 24, 2016 - 12:21PM

    @Raj – USA:

    The development of Gwadar is more important to Pakistan than anything else and will be pursued regardless of costs. The benefits will come in the form of economic activity.Recommend

  • Faisal
    May 24, 2016 - 12:27PM

    I don’t know why we are not happy for this project, this project is once in a life time opportunity for Pakistan and hope to rise and become the stable country. We should be thankful to China, for investing in this multi-Billion dollar project keeping the facts about security issues in Balochistan, its a ray of hope. Recommend

  • Pakistani
    May 24, 2016 - 12:55PM

    Maybe somewhere down the line people involved in approving such ludicrous concessions will be brought to justice. Recommend

  • Feroz
    May 24, 2016 - 3:24PM

    Without Taxes how does the government plan to increase its revenues ? No tax on the hefty interest payments for Chinese financiers either. Why did the Government not offer similar terms to local investors earlier ? Who are the folks taking these decisions must be minuted and notes guarded carefully. A windfall for the Chinese, what is in it for Pakistan will become evident in the years to come. Recommend

  • Financial Analyst, London
    May 24, 2016 - 3:27PM

    So Gawadar port area has been completely SOLD out to Chinese for at least 40 years as Pakistan will not benefit a penny…All the special economic zones do give concessions around world but still makes some monies, exception is Gawadar…Now can only rely on prayers for prosperity to come to Pakistan because of highly anticipated Gawadar port as mathematically seems it is a poor business decision. Good luck.Recommend

  • Menon
    May 24, 2016 - 3:41PM

    Pakistan treasury is flushed with money and doesn’t know what to do with all the money. So, it gives loans to China.

    Soon, Pakistan will be giving aid to the USRecommend

  • Hamza
    May 24, 2016 - 7:12PM

    @Raj – USA:

    You dont need to worry about thatRecommend

  • Hamza
    May 24, 2016 - 7:13PM

    @Feroz:
    You make money on the billions they will investRecommend

  • Khan
    May 24, 2016 - 7:21PM

    Such exemptions are needed to turn the barren land of gwadar into a business hub. Without these exemptions why would people invest in a remote area of Pakistan. Once businesses are set up and economic activity increases, the taxes would be enforced i.e after 23 years. As far as benefits to pakistan are concerned, our people will get jobs, our labourers and truck drivers will earn massively once millions of tonnes of goods are transported to and from Gwadar. Recommend

  • ibs
    May 24, 2016 - 8:32PM

    This is good news. This is an oppurtunity to reverse the fortunes of the area. Incentives like these will spur growth and investment. Its nice to see that Pakistan is looking decades ahead rather than leasing a “rental power plant”. Recommend

  • Barry
    May 25, 2016 - 3:49AM

    Now with Chabbar going full steam ahead the choice for Afghanistan, Iran , and Central Asia/Russia is who to deal with.

    Would any of them be willing to deal with the Chinese? or with Pakistan ?

    The emphasis is on Pakistan !!!!!

    the chinese need to choose their friends carefully. They need to be less aggressive – otherwise they will be put in the same basket as pakistanRecommend

  • salman
    May 25, 2016 - 5:51AM

    Looks like Indians are really getting jealous with every news coming in and out from Gwader.Recommend

  • someone
    May 25, 2016 - 7:57AM

    @salman:
    Indians are not jealous but happy and remember Jinnah in their prayers everyday for making Pakistan.Recommend

  • Fateh
    May 25, 2016 - 12:52PM

    It is difficult to comment on this project as we just don’t have enough data. We do not know how the hefty interest paid, tax free, or the guaranteed returns to the Chinese fit into our own balance sheet and what we hope to earn from this, i.e. what is the net return for us. The typical answer I get when asked such questions is always ”national security”, which is nothing but cloak for our rulers to cover all their deeds under.Recommend

  • May 25, 2016 - 6:56PM

    LOL India asking for same incentives in Chabahar & indians are criticising Pakistan for giving same incentives to China. Now this project must be worth it if this is making indians cry. PRobably indians r more depressed how the corrupt, slow institutions fast-tracked policy so quickly which they were’nt expecting and actually did’nt like. These indian were offered Gwadar for investment by Pakistan in 2004 during Musharraf era they refused. For years they r not doing and don’t want any investments in Pakistan they want to us to become the same like indian muslims living in ghettoes like Juhapura and Thane which they themse4lves ridicule & call them little Pakistan. Don’t want the muslim community to develop in South Asia and continue the status quo to keep them away from progress . Off course thats how they think and we are here replying their silly criticism.Recommend

  • Mussa
    May 25, 2016 - 8:14PM

    It’s one good strategic move by Nawaz government. The economic effects are tremendous. To find money, get rid of corruption. I have not seen ONE person found guilty and punished for corruption even though the country is swamped in corruption. This is very alarming news for Nawaz government.Recommend

  • NAVEED HUSSAIN
    Jun 12, 2016 - 8:53PM

    Actually there is no government in Pakistan every thing is dictated to government from abroad.Recommend

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