ISLAMABAD: Despite an International Monetary Fund (IMF) statement indicating government assurance to phase-out incentives for Special Economic Zones (SEZs), there’s a legal and contractual barrier to such a move. Special Economic Zones (SEZs) Act 2012 has been established through specific legislation passed by the parliament. These laws outline the incentives, benefits, and operational framework for these zones.
In a statement on July 12, 2024, “IMF Reaches Staff-Level Agreement on Economic Policies with Pakistan for 37-month Extended Fund Facility. It says “They are also phasing out incentives to Special Economic Zones”.
An official in Board of Investment (BOI) told Business Recorder on the condition of anonymity that SEZs have been given protection under Act. The Act says, “These benefits shall not be withdrawn prematurely, and any change therein shall be to the advantage of the developer of the SEZ or the enterprise”, written in Special Economic Zones Act, 2012.
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He further said governments often enter into contractual agreements with investors in SEZs, promising specific incentives and tax holidays. These agreements have legal standing and cannot be easily revoked, he added. Till now, 22 SEZs have been approved; while 21 of them have been notified by the BOI. These include, 4 CPEC SEZs, 3 Private SEZs (including two Sole Enterprise SEZs), and a Science and Technology Park that is being established by NUST in Islamabad.
When contacted, an owner of a manufacturing unit in the SEZ in Sindh told Business Recorder that the government’s plan to phase-out tax incentives to the Special Economic Zones (SEZs) will halt industrialisation in the country. There is also Chinese investment in the SEZs. The withdrawal of 10 years’ tax holidays would hurt the investors’ confidence and hamper future investment in Pakistan.
Details of tax concessions revealed that at present, income tax exemption is available to units located in the Special Economic Zones for ten years’ period.
The Federal Board of Revenue (FBR) has granted exemption of duties and taxes on the import of plant, machinery and equipment to be installed at the industrial undertakings of the SEZs.
The exemption from minimum turnover tax is also granted to units located in the Special Economic Zones.
He added that it would not be practically possible to abolish 10 years’ tax holidays for the SEZs. For example, the government has to restore the exemption from minimum tax on turnover through Finance Act 2024 for the SEZs.
Copyright Business Recorder, 2024
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