FBR opposes sales tax exemption for Gwadar Free Zone

ST on imported Gwadar warehouse goods to stay

ISLAMABAD: The Federal Board of Revenue (FBR) has opposed the Ministry of Maritime Affairs’ proposal, seeking exemption of warehouse goods imported for Gwadar Free Zone from sales tax.

Likewise, the FBR also opposed the suggestion for extension in the exemption of vehicles imported by China Overseas Ports Holding Company Limited (COPHCL) and its operating companies for Gwadar Free Zone and Gwadar Port from 23 years to 40 years from customs duty and taxes.

However, the tax collection agency has agreed to exempt the COPHCL and its operating companies from paying income tax on the earnings obtained from Gwadar Free Zone and Gwadar Port, while customs duty rebate on import of goods by Gwadar International Terminals Limited and Gwadar Marine Services Limited is also being considered.

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The FBR agreed to provide zero-rating facility to Gwadar Free Zone just like it was being provided to Export Processing Zones. It also gave a green-light to exempting Gwadar Port operating companies and the companies profiting from Gwadar Free Zone and taxpayers from paying tax.

According to details, the FBR has sent to the Ministry of Maritime Affairs a summary proposing exemption of duties and taxes for Gwadar Port and Gwadar Free Zone. After approval of the summary by the federal cabinet and the Economic Coordination Committee (ECC), the amended provisions will be instituted as part of the tax rules.

In its summary – a copy of which is available with The Express Tribune – submitted to the FBR, the maritime ministry suggested inclusion of a new serial in the sixth schedule of the Sales Tax Act 1990, according to which, the material and equipment imported for manufacturing of goods for Gwadar Free Zone should be exempted from taxes and duties.

The serial further advocates' exemption of sales tax for warehouse goods, material, and machinery imported by investors at the free business zone.

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However, it is proposed that the FBR should ensure that the investors at the port and free zone comply with all the terms and procedures laid down in the Customs Act 1969 necessary for sales tax exemptions.

While FBR has agreed to the provision of zero-rating facility for import of machinery and equipment, it has opposed the zero sales tax facility for import of warehousing products by investors in the free zone.

The FBR in its remarks regarding the proposal suggested removal of the term zero ratings for investors related to the warehouse goods.

However, the FBR has given a go-ahead for zero-rating facility for business entities at the Gwadar Free Zone while suggesting the inclusion of a separate serial in this regard.

Currently, the Chinese companies working at the free zone and Gwadar Port have been exempted from income tax, while operating companies at the port and investors and taxpayers thereof have also been exempted from income tax on their profit, maintained the maritime ministry’s summary proposing similar exemptions for the four companies operated by Chinese-owned firms.

The FBR has agreed to the proposals after which it has included names of COPHCL, Gwadar International Terminals Limited, Gwadar Marine Services Limited, and Gwadar Free Zone Company Limited under Clause 126AB of the Income Tax Ordinance 2001.

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As per the summary review of the FBR, most of the proposals presented by the maritime ministry pertaining to the exemption of customs taxes and duties at Gwadar Port and Gwadar Free Zone have been agreed upon.

However, the recommendation for exemption of duties on import of goods by the Gwadar International Terminals Limited and Gwadar Marine Services Limited has been objected to.

Published in The Express Tribune, August 23^rd, 2019.