KEPZ exports to tariff area

The Central Board of Revenue (CBR) has relaxed the recently imposed restriction on manufacturing units located in the Karachi Export Processing Zone (KEPZ) exporting their finished goods to the country's tariff area.
The relaxation has been allowed in response to protests from the KEPZ manufacturing units which suffered losses on account of the restriction on their exports.
Under the last budget the export processing zones were permitted to export only up to 20 percent of their production to the tariff area.
Relaxation has now been granted within the scope of the SRO No 410 which provides for temporary imports of raw materials on duty-free basis by export-oriented industries for re-exporting the finished products made out of the imported materials.
The change would specifically benefit the manufacturers of polypropylene sacks, which are used in the export of rice from the tariff area of the country.
The rice exporters have, therefore welcomed the CBR decision as they depend heavily on the supply of these sacks from the KEPZ. In fact, the export of rice would have also been adversely affected if the CBR had not announced the relaxation. Thus it is undoubtedly a timely action by the CBR which has averted adverse consequences for rice exports.
It may, however, be pointed out here that the facility given under the relaxation may also be misused by other manufacturing units in the KEPZ.
For instance, paper sack manufacturing units may also be set up in the export processing zones with the intention of exporting these sacks to the tariff area for use in the export of cement to Afghanistan.
In this context, close monitoring of the linkage in business transactions between the export processing zones and the companies operating in the tariff area of the country, will be necessary. It is common knowledge that investors in the export processing zones are allowed a number of tax concessions in the form of duty-free imports of machinery and raw materials in addition to other relief in direct taxes.
These concessions are aimed at promoting manufacturing facilities in these zones to boost exports directly.
The fiscal concessions have been specially devised to attract capital investment from foreign investors to set up manufacturing industries exclusively for making exports.
The area has thus been developed for a wide range of industrial establishments having export potential for a period of about 20 years. After the expiry of the fiscal concessions, the industrial development in the specific areas, is to be integrated into the national economy.
These laudable objectives are likely to receive a setback if manipulations by vested interests in trade and industry are not effectively checked.
The extremely slow process of foreign investment in the Karachi Export Processing Zone during nearly two decades of its establishment, is seemingly attributable to lack of sincere efforts to realise the aims of developing export potential through these zones.
In contrast, similar export processing zones in other countries of the region have achieved the desired goals. An example of remarkable success can be seen in the Bangladesh Export Processing Zone which was visited last year by Pakistan's federal minister for industries.