The Economic Co-ordination Committee (ECC) of the Cabinet has closed a case of Ministry of Port and Shipping regarding exemption of customs duty and sales tax on temporary import of four LNG-specific ASD tug boats as parliament and not the executive can grant an exemption, well-informed sources told Business Recorder. On May 21, 2015, ECC appointed a committee to review the report of customs duties/taxes on the import of LNG-specific ASD tugs.
Accordingly, a committee meeting was held on July 7, 2015 under the chairmanship of Barrister Zafarullah Khan, Special Assistant to the Prime Minister for Cabinet Division. Secretary Ports and Shipping revealed that the Federal Cabinet approved a fast track LNG project and accordingly, PQA was required to arrange four LNG compatible ASD tugs prior to commissioning of the terminal. Under the LNG Policy, 2011 Port Qasim is classified as a developer of LNG supply chain and through perpetual participation in the facilitation of LNG ships is a member of a consortium. Thus, PQA is entitled to such incentives granted and assured by the federal government in Section 7.1 (a) (b) of the LNG Policy, 2011. He further vowed that LNG specific ASD tugs were taken on lease by PQA for safe operation of LNG to avoid any vulnerable conditions attributable to fire, explosive hazards to the ships in the Port and other regular shipping traffic.
Chairman PQA, while explaining the background, revealed that Merchant Marine Policy, 2011 gives incentive to the ships and all floating crafts including tugs, dredgers, survey vessels and other specialized tugs purchased/chartered by a Pakistani entity are liable to be exempted from payment of all import duties and surcharges to boost the shipping activities in the country. However, FBR did not implement the policy and is denying the same by levying high rate of tax on LNG-specific tugs, which in fact are not purchased by PQA but taken on lease for a period of two years.
He further revealed that the LNG specific tugs have been chartered (temporary import) by PQA and deployed for the specific use of LNG operation which otherwise was not possible with the existing ASD tugs of Port Qasim. The FBR is denying such relief as it is available to Port Qasim for exemption of custom duty and sales tax etc. PQA financial budget would be totally disturbed. Moreover, the exorbitant tariff would be transferred to end user resulting in inflation of LNG cost to the end user, besides upsetting the basic feasibility of this LNG supply chain. The LNG tugs are hired on a two-year lease basis and are not owned by PQA. The chartered cost includes the LNG tugs operation, manning and maintenance for two years. Therefore, the charges imposed by the FBR are on higher side even in comparison to the region.
The viewpoint of the FBR was explained by the Member Customs who shared various documents with the committee. The principle stand of the FBR was that the LNG Policy 2011 did not envisage total exemption from customs duty to tugs as claimed by the PQA nor was the claimed exemption admissible under SRO 678 (1)2004 as amended from time to time. It was stated and not controverted by the other side that tug boats are used for escorting and harbor operations on a commercial basis and can be used for activities other than LNG-related ventures.
It was further stated that after promulgation of Section 2 (1) of the Finance Act, 2015, the power to grant exemption from customs duty was no longer in the executive domain. It was also brought to notice that during the pendancy of the matter before the ECC, PQA started litigation and has taken the matter to the High Court of Sindh in its original jurisdiction in Suit No 996 of 2015.
After a detailed discussion, the committee maintained that the stance of PQA is not tenable as tug boats neither figure in the Petroleum Policy nor do they in the notification relied upon by PQA. The committee also maintained that the power to grant exemption having been taken away from the domain of Federal Government such a concession cannot be granted to an entity engaged in commercial activity. Be that as it may, since the matter has been taken to Court it may be left for the PQA to pursue the matter in the Sindh High Court without any further deliberation by the ECC. In the light of committee recommendations, Ministry of Ports and Shipping submitted a summary to the ECC to either close the case or grant exemption from taxes for import of four tag boats. On January 13, 2016, ECC considered the summary of Ministry of Ports and Shipping and decided to close the case.
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