Gwadar agreement: No clause for 40-year tax holiday

Maritime affairs secretary admits original concession deal offers 20-year tax relief

ISLAMABAD: In a stunning disclosure, the maritime affairs secretary admitted on Wednesday that the original Gwadar Port concession agreement offered only 20-year - not 40-year - tax holiday to port operators and there was no provision for extending the tax concession to sub-contractors.

Ministry of Maritime Affairs Secretary Rizwan Ahmad made the disclosure in a meeting of the Senate Standing Committee on Finance, which had called the top bureaucrat to come and produce the Gwadar Port concession agreement with China.

The standing committee had asked the maritime affairs secretary to appear before it as a day earlier the Federal Board of Revenue (FBR) told the committee that it proposed up to 40-year tax holiday for Gwadar Port operators, its contactors and sub-contractors on the recommendation of the maritime affairs ministry.

But the statement made by the maritime affairs secretary revealed that there was no clause in the port concession agreement that guaranteed 40-year tax holiday and also the sub-contractors were not eligible for any tax concession.

“Under Clause 7.1.1, the concession holder and its contractors and lenders will have 20-year tax holiday,” said Ahmad while giving a statement on the status of the Gwadar Port and Free Zone tax concession agreement.

“Were sub-contractors of the contractors eligible for a similar tax treatment?” questioned Senator Farooq H Naek, Chairman of the standing committee, to which the secretary said no.

“The Ministry of Maritime Affairs earlier misguided parliament and breached its privilege,” said the committee chairman.

He directed the secretary to produce on Thursday the original copy of the 2007 Gwadar Port concession agreement between Pakistan and a Singaporean company, the 2013 Novation Agreement between Singapore and a Chinese company, names of contactors, sub-contractors and their owners.

“This is a clear case of fraud,” remarked Senator Ayesha Raza Farooq of the Pakistan Muslim League-Nawaz (PML-N).

The government had given a 40-year tax holiday to the Chinese operators of Gwadar Port and Free Zone through a presidential ordinance in October last year. The ordinance has lapsed and the government has now proposed permanent legal cover for these concessions through the Finance Bill 2020.

The maritime affairs secretary statement confirmed that it was not legally binding for Pakistan to give 40-year tax concessions to the operators and the sub-contractors were also not at all eligible for any tax concession, said PML-N Senator Musadiq Malik.

The secretary told the meeting that the original port concession agreement had been signed in 2007 with the Singapore Port Authority and in 2013 Singapore sold its rights to the Chinese company on the same terms and conditions that it agreed with Pakistan in 2007.

He said under the agreement China Port Holding Company got three firms registered with the Securities and Exchange Commission of Pakistan (SECP), namely the Gwadar Free Zone Company Limited, Gwadar Maritime Services Limited and Gwadar International Terminal Limited.

Pakistan Tehreek-e-Insaf’s (PTI) Senator Mohsin Aziz supported the tax concessions to Gwadar Port operators but objected to giving a 40-year tax holiday, double the legally binding condition of 20 years.

The committee rejected proposed amendments with a 5-3 majority vote but then decided to reopen the issue on the insistence of Senator Aziz.

Other budgetary proposals

The standing committee unanimously rejected a proposal that sought to transfer the burden of proof to people who committed crime under the Customs Act. Currently, the responsibility to prove the guilt lies with the FBR.

At present, only under the National Accountability Bureau (NAB) law, the accused is required to prove his innocence.

The standing committee’s recommendations pertaining to the Finance Bill are not binding on the government.

It also rejected a budget proposal that sought to give the FBR the discretion to declare any person as the authorised economic operator, who will be eligible to claim extra benefits.

“In Pakistan, only Razak Dawood and Nadeem Babar will be declared authorised economic operators,” remarked Pakistan Peoples Party (PPP) Senator Sherry Rehman.

The standing committee endorsed the proposal of relaxing the condition of producing CNIC on goods purchases above Rs50,000 to Rs100,000.

Senator Aziz wanted the condition to be further relaxed to Rs500,000 but Musadiq Malik and others opposed while terming it against documentation of the economy.

The standing committee rejected the proposal of giving the FBR online access to the companies’ production facilities.

Published in The Express Tribune, June 18^th, 2020.

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