The Federal Cabinet has directed Minister for Law & Justice to hold a meeting with Federal Board of Revenue (FBR) and Ministry of Maritime and Affairs and decide on legal course to be adopted to notify the approved concessions, well-informed sources told Business Recorder. These directions were issued by the Cabinet on September 17, 2019 while ratifying the decisions of the ECC held on August 28, 2019.
Both the Ministry of Maritime Affairs and FBR have divergent views on some of the tax concessions. On June 17, 2019, it was concluded during a meeting that points on which differences of opinion exist may be referred to Law and Justice Division, which offered legal opinion. Accordingly, Ministry of Maritime Affairs requested FBR to furnish composite viewpoint on the summary. In response, FBR on August 1, 2019, gave its consent on 12 clauses (of which consent on some clauses have been given on the advice of Law and Justice Division) of the Sales Tax Act and FED for the time being.
Ministry of Maritime Affairs requested the ECC to approve the proposed exemptions in the Income Tax Ordinance, Sales Tax and Customs Act as agreed by FBR and FBR may be directed to these exemptions.
During the ensuing discussion, the ECC observed that the issue of amendments has been pending since long and the Chinese side expects that the specific exemptions for Gwadar Free Zone as per concession agreement would be approved sooner rather than later. FBR expressed its inability to notify proposed amendments through promulgation of SRO as such amendments are not allowed under the law.
The ECC cleared the proposed exemptions in the Income Tax Ordinance, Sales Tax Act and Customs Act as agreed by FBR for Gwadar Free Zone.
The ECC also directed the Cabinet Division to organize a meeting to consult Law and Justice Division for adopting correct legal method for making necessary amendments (through SROs or Bill) in the laws of Income Tax, Sales Tax, Federal Excise Duty and Customs Act for granting specific exemptions for Gwadar Free Zone and propose institutional arrangements in consultation with FBR, BoI, Finance Division, Commerce Division and Planning and Development and Reform Division and submit a report to the Cabinet at the time of ratification of the ECC decision.
However, on September 11, 2019, Secretary Ministry of Maritime Affairs (MoMA), Rizwan Ahmad, in a letter accused Federal Board of Revenue (FBR) of backing out from agreed incentives for Gwadar Port and Gwadar Free Zone, two key projects of the China Pakistan Economic Corridor (CPEC), sources close to Minister for Maritime Affairs revealed. On September 5, 2019 Cabinet Division forwarded a letter of September 2, 2019 issued by the Federal Board of Revenue, Inland Policy Wing about necessary amendments/ exemption required for the Gwadar Port and Gwadar Free Zone, saying that some of the proposals are covered under the concession agreement and others are not. Accordingly, the SRO or notification does not appear to be an appropriate method.
He argued that the UO (Un Official) note is contrary to the spirit of the decision taken by ECC. It would be difficult to appreciate the consultative process adopted by MoMA in finalization of the summary for ECC until and unless the backdrop of initiating the summary is not penned down for the benefit of all.
A meeting to remove the impediments in awarding the concession to Gwadar Port and Gwadar Free Zone as per the concession agreement was held on April 25, 2019, which was co-chaired by the then Chairman FBR and Secretary Maritime Affairs. After a discussion, four issues pertaining to customs were sent to Law and Justice Ministry as desired by FBR for legal advice.
According to the Ministry of Maritime Affairs, Sales Tax, Federal Excise Duty (FED) and Income Tax concessions were already agreed by FBR. After receiving the advice from Ministry of Law and Justice on the four issues, the draft summary titled "approval of necessary amendments/exemptions required for the Gwadar Port and Gwadar Free Zone" was shared with FBR for its comments.
The FBR, in a letter of August 1, 2019 sent its comments. Accordingly, Ministry of Maritime Affairs submitted the summary to the ECC on August 28, 2019. MoMA sought approval from the ECC wherein the viewpoint of FBR was approved. During the ECC meeting, the representative of FBR only agitated the mode of implementation of the concessions. The viewpoint of FBR was that as per the existing Acts, issuance of the SRO would not be possible.
The ECC, keeping in view the comments of FBR, directed the Cabinet Division to arrange a meeting in Ministry of Law and Justice to propose the institutional arrangements in consultation with FBR, BoI, Finance Division, Commerce Division and Planning, Development and Reform Division and submit a report thereon to the Cabinet at the time of ratification of the ECC decision.
On August 29, 2019, the Minister for Law and Justice, in a meeting which was attended by Minister for Maritime Affairs, Secretary, Ministry of Maritime Affairs, Special Secretary to the Cabinet, representatives of FBR and the Ministry of Law and Justice directed MoMA to send the reference to the Ministry of Law and Justice on the same day, so that advice could be given before the next Cabinet meeting. The reference was sent by MoMA to the Ministry of Law and Justice on the same day with a copy of Cabinet decision. The Ministry of Law and Justice convened the meeting on September 2, 2019, which was chaired by Minister for Law and Justice. The meeting was attended by the relevant ministries and the FBR.
After explaining the entire background, the Ministry of Maritime Affairs, stated that it is incomprehensible that after approval of the ECC (endorsing the viewpoint of FBR) FBR chose to contradict its earlier stance. During the ECC, no objection(s) was raised by it. Had the FBR raised objection(s), ECC would have reconsidered it.
The Ministry of Maritime maintains that since ECC has already approved the tax concession for Gwadar Port and Gwadar Free Zone, therefore, FBR may abide by the ECC decision and withdraw its reference to the Cabinet Division moved on September 2, 2019 and refer to Ministry of Law and Justice for advice on the institutional arrangement for implementing the concession. Alternatively, FBR may move a separate summary for the ECC with revised proposals for exemptions for Gwadar Port and Gwadar Free Zone for consideration.
However, on September 17, 2019 when the minutes of the ECC were presented, the Cabinet directed Minister for Law and Justice to hold a meeting with FBR and Ministry of Maritime Affairs and decide on legal course to be adopted to notify the approved concessions.
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