Quoting Karachi Export Processing Zone sources, a news report appearing on February 8, pointed to the predicament of a number of industrial units in the zone, which are faced with closure due to Customs restriction on exports of their products to the tariff area inside the country. The units, thus endangered, are reportedly engaged in the manufacture of miscellaneous products, such as cassettes, toys, watches etc.
Their discomfiture has been attributed a new rule announced in the last budget, which stipulated that the units in the zone would be required to export 80 percent of their total output, with only 20 percent marked for sale to the tariff area. However, they now contended that before the law came into effect, the manufacturers inside the zone had already filed bills of entry with the Customs to fulfil their pre-budget commitments.
As such, having exhausted all their orders, they were apparently, left with nothing to sell, thereby needing to hastily search for new markets, failing which they would remain threatened with closure. The report, under reference, also has it that the owners of the affected units made a strong representation to the Central Board of Revenue (CBR) for withdrawal of the rule but without much success, pointing out that Customs had remained adamant.
In so far as the Customs Department's stand in the matter is concerned, it can hardly be disputed. For, as they have rightly argued, the EPZ was established with the sole purpose of providing a boost to the country's exports to the world outside, through various concessions and incentives for foreign investors. As such, the manufacturing units operating therein could not be allowed to do business freely with the local market.
It will be recalled that, taking a lenient view in certain cases, the Central Board of Revenue had relaxed the restriction, in October last year, on certain manufacturing units in the KEPZ, thereby allowing export of their products, within the scope of SRO No 410, by providing for temporary, duty-free, import of raw material too.
This was, precisely, applicable to export-oriented industrial units for re-exporting the finished products based on the imported raw materials. It will be noted that the relaxation, based on compassionate grounds, had largely benefited makers of polypropylene sacks used for export of rice from the tariff areas of the country.
That it came as a boon to the country's export trade in rice, should leave little to doubt. For were it not for this special enabling gesture from the Revenue Board, the export of rice from Pakistan would have suffered a serious setback.
Needless to point out, the relaxation that came to the rescue of rice exporters was warranted by extraordinary circumstances. However, it will now appear that a deliberate attempt is being made so to bend that special measure so as to help open the floodgates of export of KEPZ products to the country's tariff areas, thereby beating the very purpose behind the concept of the Export Processing Zones.
It will also be recalled that while, earlier welcoming that gesture for rice exports, in these columns, we had cautioned against the threat of its extended abuse. Now that the KEPZ is reported to have witnessed fresh inflow of investment in food processing units and second-hand clothing, a similar gesture to them and certain other manufacturing units is being pressed for on the argument of boost to the country's export earnings to a considerable extent.
However, the fact remains that foreign investors are allowed numerous tax concessions in the export processing zones, on import of machinery and raw materials to help boost direct exports, for a specified period of about 20 years, on expiry of which the industrial development thus accruing is to be integrated with the national economy. However, while certain countries in our region, have gained much from this strategy, a great deal remains left to be desired in Pakistan.
Time has come to ensure that KEPZ incentives are no more sacrificed for frivolous gains whatever the temptations may be.
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