Tax exemptions for Gwadar

The Economic Coordination Committee of the Cabinet has extended the scope of tax exemptions granted to Port Singapore Authority International (PSAI) and AKD Consortium for the operation of Gwadar Port, says a Recorder Report.
According to an official quoted in the report, the Gwadar Port proposal was not on the agenda till the night before, and that it was brought up at the eleventh hour, presumably by the Ministry of Ports and Shipping, as the outgoing members of ECC were said to be familiar with the details of the concession agreement.
The ministry reminded the ECC that on 1st February, 2007 the committee had allowed the following exemptions: (i) Tax Holiday on the corporate income of the three novated companies to be established for the operation of Gwadar Port for twenty years; (ii) Exemption from import duties on materials and equipment needed for the construction and operation of Gwadar Port and development of a Free Zone for a period of 40 years; (iii) Exemptions from duties on ship bunker oil for Gwadar for 40 years; and (iv) Exemption from local and provincial taxes for 20 years. Since the concession agreement had granted some more exemptions, the Port Ministry wanted to obtain ECC approval for them.
The additional concessions are: (i) Tax Holiday for the concession-holder, ie Port Singapore Authority International, on corporate income for a period of twenty years; (ii) Exemption of the Lenders from Income Tax on interest and from stamp duties in respect of the Financing Agreement; (iii) Exemption of the three operation companies, established under the said Agreement, from sales tax; and (iv) Exemption of material and equipment required for construction of the project from sales tax for forty years. The latest ECC approval is now in line with the concession agreement signed earlier in the year between Gwadar Port Authority and PSAI/AKD.
Unfortunately the reason for the additional approval was not explained properly at the subsequent press briefing. This created a misperception in some circles as if the PSAI/AKD was being accorded some extra favour. This is not the case.
The state of affairs at Gwadar Port are far from satisfactory and progress of work is extremely slow. The crucial issue of rail and road connectivity is yet to be fully addressed.
For instance, despite repeated directives, the Railway Ministry had taken as long as three years to prepare the feasibility report on the Rs 70 billion, 961-km Gwadar rail track connecting Gwadar to the main network in the Quetta-Kohi-Taftan section. According to the plan, the rail link will connect Gwadar with Turbat, Hushab, Panjgor, Nag, Bestima, Surab, Kalat and Mastung. The Gwadar-Mastung track would bring Turbat, Panjgor, Bestima and Kalat into the main line loop.
Further, the Communication Ministry too has yet to complete the road network. Rail and road connectivity is a key pre-requisite for completion and early operationalization of a mega project. The delay in the project is being attributed partly to the fact that the route runs through restive areas of Balochistan. At present the Coastal Highway from Karachi is the only connection to the Port. That too has been washed away at several places.
It is most unfortunate that the Navy and Coast Guard have refused to hand over the land adjacent to the port despite Presidential Orders and Federal Cabinet approval. Additional land to be given for establishing warehouses and industries, as committed in the agreement, is yet to be purchased by the Balochistan authorities and handed to the concession holders.
The importance of Gwadar Port lies in the fact that over 95 percent of Pakistan's freight trade is sea-borne, and there are powerful regional players such as China which are keenly interested in the mega project. China had given Pakistan $198 million in aid to build Gwadar Port's first phase, and later agreed to provide another $500 million in aid for the second phase.
It is said that China's interest in Gwadar Port owes to the fact that its eastern seaboard is located some 3,500 kilometers from Kashghar, western China's main city, while the distance from Kashghar to Gwadar on Balochistan's Mekran coast is only 1,500 kilometers. There would thus be a huge cost advantage to China using Gwadar as the gateway port for the western China region, instead of its far-off eastern ports.
Pakistan yearned for the vast energy resources of Central Asia, and Gwadar is going to serve as the main hub of the energy corridor. Work on the mega project should, therefore, be speeded up, as the port can serve as a pivot of our trade corridor as well. Until the Keamari Groyne project at KPT is completed, Gwadar Port can accommodate larger vessels which at present cannot call on Karachi Port or Port Qasim.
It needs to be understood that Gwadar's locational potential can only be exploited if the requisite investment of foreign capital is made and there is peace in this area. At present Gwadar is a backwater fishermen outpost. In the present state it is of no commercial value. Without availability of the tax exemptions and promulgation of laws for Special Economic Zone - Gwadar's potential cannot be exploited.