CBR moves defy government commitment to investors

The two major announcements in federal budget 2004-2005 by the Central Board of Revenue (CBR), pertaining to tax structure for Export Processing Zones (EPZs), have hampered supplies to the tariff areas, violating government's commitment with investors for not changing the incentive packages for the EPZs.
While expressing its reservations, Ministry of Industries and Production has informed the Chairman CBR that SRO 461(I)/2004 of June 12, 2004 has curtailed export from the EPZ to tariff area to 20 percent of the total production of a unit situated in the zone, while 80 percent is to be exported to foreign countries. This restriction has created unrest among some of the investors whose major portion of export is destined to the tariff areas of Pakistan.
Secondly, the CBR's move to withdraw exemption of central excise duty (CED) on supply of construction material, like cement and steel, to EPZs has also created serious problems for the exporters.
This exemption was available to EPZ investors for the last 22 years against convertible foreign exchange.
The cement etc so supplied was treated as export as it was needed for building of infrastructure facilities by the exporters. This will also increase the construction cost of investors and result in discouraging new investment.
It is relevant to mention here that Rule 24A of EPZA 1981 clearly says that change in the incentive package for the EPZ shall not be made except where such change is more advantageous to the investors and also acceptable to them.
EPZA is making efforts to establish network of EPZs in Pakistan for attracting foreign investment.
The provisions of SRO 461(I)/2004 dated June 12, 2004 will work against the policy to attract foreign investment in the Zones. This has also created uncertainty amongst the investors who are in the process of setting up new projects in the EPZs.
Keeping this in view, CBR must review these decisions and restore the facility of 100 percent export to tariff area and exemption from CED on construction materials.