Gwadar agreement: Senate body backs 40-year tax break

Govt shows document to legislators which offers tax concessions to all

ISLAMABAD: A Senate panel on Tuesday endorsed 40-year tax holiday for Gwadar Port and its free zone after the government showed the bilateral agreement to legislators that carried provisions for tax concessions for all including sub-contractors.

The Senate Standing Committee on Finance criticised Maritime Affairs Secretary Rizwan Ahmad for making a misstatement about the time period of tax concessions and exclusion of sub-contractors from the scope of these concessions.

After having a look at the agreement, the standing committee endorsed the tax concessions that the government proposed in the Finance Bill 2020 for Gwadar Port and Gwadar Free Zone. The committee meeting was held in-camera due to the hype created about the nature of Pakistan-China agreement on Gwadar Port.

The proposed amendments were in line with the original 2007 Gwadar Port agreement, according to the standing committee.

Contrary to the secretary’s claim that the agreement was confidential, the committee did not find any confidentiality clause in the treaty. However, it returned photocopies of the agreement to the Ministry of Maritime Affairs after reviewing it.

“The 2007 and 2013 concession and novation agreements cannot be shared as there is a confidentiality clause in the agreement,” the maritime affairs secretary stated last week during a meeting of the Senate Standing Committee on Finance.

Last week, the secretary also stated that “the original Gwadar Port concession agreement offered only 20-year tax holiday to port operators and there was also no provision for extending the tax concessions to sub-contractors.”

Pakistan has handed over Gwadar Port to China that is developing the deep-sea port as part of the strategic Belt and Road Initiative of the Chinese president.

“The Ministry of Maritime Affairs earlier misguided parliament and breached its privilege,” said Committee Chairman Senator Farooq H Naek of the Pakistan Peoples Party (PPP).

Jamiat Ulema-e-Islam Fazl (JUI-F) Senator Talha Mehmood suggested that the committee should move a privilege motion against the secretary while taking exception to the wrong information provided by him.

Earlier on June 18, the maritime affairs secretary stated 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 tax concessions to the sub-contractors.

The Federal Board of Revenue (FBR) proposed up to 40-year tax holiday for Gwadar Port operators, its contractors and sub-contractors on the recommendation of the maritime affairs ministry.

Sub-contractors were also covered under the definition of contractors, therefore, they were eligible for the concessions, according to the standing committee chairman, who briefed panel members on the agreement.

“These concessions would be very useful in operating Gwadar Port and Gwadar Free Zone,” the finance committee remarked. “As a result, its people would also benefit in terms of employment and development of the area.”

The agreement showed that the 40-year tax holiday took effect from February 6, 2007 under the 2007 Gwadar Port concession agreement between Pakistan and a Singaporean company.

The 2013 novation agreement between Singapore and a Chinese company only changed the name of the operator and rest of the conditions remained unchanged, according to a member of the standing committee.

The government had given 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.

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

Now, these three companies will avail the concessions, which will also be available to their sub-contractors.

Published in The Express Tribune, June 24^th, 2020.

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