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

Also allows Arif Habib Group to invest $300m in US, gives tax break to Elengy Terminal.


Shahbaz Rana April 09, 2015
The industrial units to be set up in the free zone [Gwadar Port] that is established over 46,000 acres will be entitled to the tax holiday. PHOTO: AFP

ISLAMABAD:


The government approved on Thursday a 23-year tax holiday for the China-run Gwadar Port in an attempt to make the deep-sea port a hub of commercial activities besides allowing the Arif Habib Group to invest $300 million in the United States.


The decisions were taken by the Economic Coordination Committee (ECC) of the cabinet, which also decided that the price of liquefied natural gas (LNG) would be determined on a monthly basis like other fossil fuels without conducting public hearings.

The Oil and Gas Regulatory Authority biannually determines gas prices, that too after holding public hearings. However, in order to fully pass on the impact of any global changes in LNG prices to end-consumers, the government has given a mandate to the regulator to determine prices on a monthly basis.

Gwadar Port

On a proposal moved by the Ministry of Ports and Shipping, the ECC decided to extend the tax holiday period for Gwadar Port and the Gwadar Port free zone from 20 years to 23 years.

The extension was given on the request of China Overseas Port Holding Company that took over the port from the Singapore Port Authority in February 2013.

The Gwadar Port Authority Board had also recommended 23-year tax holiday. The decision was taken to attract national and foreign investors and to enhance overall foreign direct investment in the area, said the Ministry of Finance.

The Gwadar Port is described as the most significant strategic pearl in China’s plan of expanding its influence in the region.

The industrial units to be set up in the free zone that is established over 46,000 acres will be entitled to the tax holiday.

Arif Habib’s investment

The ECC also allowed Fatima Fertilizer Company to invest $300 million in Midwest Fertiliser Corporation in the US through floating international bonds of an equivalent amount.

The Ministry of Finance moved the summary for ECC’s consideration only after US Ambassador to Pakistan Richard Olson intervened. The summary was not part of ECC’s original agenda issued on April 7.

Last month, the finance ministry had agreed, in principle, to allow the Arif Habib Group to invest in the US. However, it wanted Arif Habib, Chairman of the group, to use his influence over equity market investors in convincing them to withdraw their opposition to the tax on bonus shares, said a ministry official.

Tax break for Elengy Terminal

While setting aside objections of the Federal Board of Revenue (FBR) that did not hold any legal base, the ECC directed tax authorities to extend a five-year complete tax holiday to Engro’s Elengy Terminal Pakistan Limited (ETPL).

In violation of the LNG policy, the FBR was opposing the tax holiday to the LNG terminal.

The ECC ruled that under the LNG policy, the terminal was entitled to a five-year tax holiday including exemption from the minimum 1% turnover tax.

The ECC also accepted the Ministry of Petroleum’s assertion that the Floating Storage and Regasification Unit (FSRU) should be treated as ‘plant and machinery’, thus, it was entitled to exemption from import duties.

The decision will go a long way in attracting new investments in the LNG sector and help in addressing the energy crisis, said Ashfaq Tola, a Karachi-based chartered accountant who played a pivotal role in convincing the authorities to give the LNG terminal a tax holiday.

On the issue of sales tax on the gas import pipeline and the LNG project, the ECC decided that LNG and imported gas would be treated like any other imported fuel and sales tax would be charged.


Published in The Express Tribune, April 10th,  2015.

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