BoI takes firm step aimed at attracting investment

ISLAMABAD: Board of Investment (BoI) has prepared a draft Investment Policy (IP) 2022, aimed at attracting investment into all sectors, unless specifically restricted for reasons of national security and public safety such as construction and operation of casinos, manufacturing of consumable alcohol, arms and ammunition, atomic energy, high explosives, currency and minting.

According to draft Investment Policy, Pakistan may grant fiscal and non-fiscal incentives for investment in promoted sectors and activities in the country. Incentives will be based on “smart” principles when needed to promote full transparency in their award and use.

A key principle is to adopt incentives based on indicators of performance of investors. Examples of performance-based incentives include investment tax allowances, investment tax credits, accelerated depreciation, reduced tax rates, infrastructure tax incentives, exemption from indirect taxes and duties, environmental tax incentives, re-investment incentives, research and investment incentives, and labour tax incentives. Investment incentives need to be targeted, automatic and properly managed.

This includes the need to design a transparent and reliable application process and monitoring and evaluation system. The incentives provide exemption, among others, from income and corporation taxes, import duties in machinery, raw materials, and research and development, import duties on raw materials used for productions for exports and non-tax incentives.

Pakistan will regularly conduct sector scanning and profiling to identify and map key sectors in the country. To be regionally competitive, Pakistan will learn from the experience of other countries and regions, such as ASEAN Member States on how to formulate and implement incentive-related policies.

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Pakistan will continue and update its fiscal and non-fiscal incentives and the eligibility for those incentives. An inventory of incentives is available on the BoI website and will be reviewed and updated regularly to ensure it remains current, effective, and well aligned with public policy goals.

The new draft IP says that the government intends to focus investment incentives on key activities relating to: (i) high technology;(ii) selected industries such as efficiency-seeking, export -oriented investments; (iii) reinvestments in the above activities, and product or services which are of national and strategic importance as promoted activities or products on a case-by-case basis, such as medical devices and pharmaceuticals. Special Tax Incentives may be granted to the whole ecosystem of the manufacturing of selected products classified as of national importance;(iv) Pakistan will also design location-based incentives to decentralized activities targeting under-developed regions; and activities taking place in industrial estates, promoted industrial zones and SEZS;(v) Pakistan will review and modernize its incentive legal framework, to be brought in line with the international best practices and national policies.

The BoI says that foreign investors in all sectors are allowed to raise local or foreign loans to finance their investments in the country, subject to prevailing rules/regulations of the Securities & Exchange Commission of Pakistan (SECP) and State Bank of Pakistan (SBP).

Foreign investors are allowed to raise funds through the securities exchange by listing on stock exchange subject to prevailing rules/ regulations.

Foreign investors in any sector may repatriate their capital, profits, dividends, or any other funds in the currency of their investment or into any other freely usable currency, subject to Foreign Exchange Regulations of the State Bank of Pakistan and provisions of the Companies Act 2017.

Remittance of royalties, technical assistance fees, franchise fees, cross charges, transfer pricing and business process outsourcing related payments are allowed subject to the rules/ regulations and procedural requirements set under the Foreign Exchange Manual of the State Bank of Pakistan.

Foreign investors shall be entitled to sell shares, transfer ownership, and wind-up companies under the Companies Act 2017 and the Banking Companies Ordinance 1962.

Foreign investors shall be entitled to acquire land on leasehold rights, subject to the rules and regulations of the concerned authorities. There will be no limitation on the onward transfer of any land so acquired by a foreign investor unless contractually specified in an agreement with the lessor and subject to Federal or Provincial regulations.

To resolve investor grievances, an Investor Grievance Redressal system has been established, which provides the necessary institutional infrastructure to enable the Government to identify, track and manage grievances between investors and public agencies as early as possible. This system ensures that the government responds to investor grievances in a suitable manner and in accordance with the country’s laws and regulations. The government ensures that the solution to the grievances agreed by representatives of related agencies is not ignored or disrespected by any of the agencies involved.

Pakistan has ratified the International Convention on Settlement of Investment Disputes between states and nationals of other states (ICSID), and at the national level, enacted the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 to ensure enforcement of awards of international arbitral forums.

IPO will establish a window for facilitation of foreign investors to assist companies in obtaining patents, trademarks, and copyrights as well as respond expeditiously to requests for enforcement of infringements.

A National Foreign Investment Law is being formulated by the Federal Board of Investment to translate key provision of the Investment Policy into an enforceable legal instrument.

A Bilateral Investment Treaty (BIT) template has been developed in consultation with stakeholders, and all future BITS will be negotiated based on the principles outlined in the new template.

Pakistan will consider negotiating, signing and ratifying free trade agreements, double taxation treaties and IIAS with other countries. Pakistan is a party to 13 regional trade agreements, 53 IIAs with 48 economic entities, and 66 Avoidance of Double Taxation Treaties. Pakistan is also a member of the Multilateral Investment Guarantee Agreement.

The draft IP 2022 further says that Pakistan intends to diversify sources of FDI by increasing investment promotion in the GCC countries, ASEAN Member States and Turkey. Pakistan will establish more investment promotion offices abroad including in the USA, Japan, Europe, GCC countries, Turkey, China, ASEAN, as well as, in new emerging economies.

Like many countries such as in the Gulf and ASEAN regions, Pakistan will prepare a list of promoted sector and activities. These sectors and activities are based on Pakistan’s comparative advantage with the objective of developing dependable, implementable, Pakistan driven supply-chains and value-chains, with local expertise.

Pakistan will provide targeted “investor aftercare initiatives” to key investment sectors and their lead local suppliers through higher level and coordinated linkages, in order to preserve and develop supply chains. The investor aftercare initiatives will provide support to investors in the application of incentives, addressing problems and support investors in implementing investment projects. Federal and Provincial BoIs / Investment Departments may identify and contact the most important and high-risk FDI firms (by level of employment, locality, and products) and solve their issues proactively.

Pakistan will facilitate investors’ strategic relocation and re-purposing towards production of in-demand goods and services, and relaxing regulatory and administrative requirements and fees.

Investment in the banking sector, including opening of branches of foreign banks, is regulated by the State Bank of Pakistan while the Securities and Exchange Commission of Pakistan regulates the corporate sector, capital market, insurance sector, non-banking finance companies, Modaraba sector and private pension schemes. Acquisitions and mergers within Pakistan are regulated by the Competition Commission of Pakistan under the Competition Act 2010 and the Companies Act 2017.

The Pakistan Investment Policy 2022 (IP 2022) intends to bring in new approaches to attract high-quality efficiency-seeking and export oriented FDI, which will increase Pakistan’s economic complexity and enhance Pakistan’s participation in the global value chain (GVC). The lP 2022 takes into consideration the current global economic challenges and changes resulting from the Covid-19 pandemic and the post Covid-19 pandemic and regional political economic challenges. The focus sectors and activities may have changed, the supply-chain has been shorter, the geo-political situation may alter the shape of source of investments, and investment climate reforms may move towards investment retention, investment facilitation and investment aftercare.

Copyright Business Recorder, 2022