Government is likely to amend Special Economic Zones (SEZs) Act to encourage foreign and domestic investors who intends to establish and promote industrial infrastructure to close doors for potential abuse by the unscrupulous businessmen, sources close to Chairman Board of Investment (BoI) told Business Recorder.
Giving the background, sources said, Special Economic Zones Act 2012 was promulgated to encourage industrial infrastructure. The purpose was to facilitate domestic and foreign investors to make invest in manufacturing sector of Pakistan by offering them special exemptions and incentives leading to reduced cost of doing business with efficiency.
The Act provided for duty free import of machinery for zone developers as well as zone enterprises. It also provided exemption from income tax for a period of ten years.
However, it was noted that there was a lacuna in the law whereby zones were considered outside the customs area of Pakistan. This rendered the customs duty exemptions meaningless and made the zones as merely Export Processing Zones (EPZs).
According to sources, Japanese company M/s Yamaha after getting deletion policy approved decided to invest as an SEZ enterprise and has applied for the purpose. However, after the discovery of Lacuna, the company has asked for amendments in the Act.
Also the largest Chinese Bank ICBC have expressed interest in setting up two SEZs-one near Lahore and one in Gwadar during the Vice Chairman's visit to Pakistan and during Punjab Chief Minister's visit to China, the sources added.
Prime Minister also invited Korean Prime Minister during his visit to set up SEZ. Turkish companies have also shown interest in SEZs. Similarly, Army Welfare Trust (AWT) also wishes to establish a large size SEZ of international stature, keeping in view the vision of China-Pakistan Economic Corridor.
The Government of Punjab also appointed some shortcomings in different provisions of the Act and proposed that SEZ Act need to be reviewed to provide incentives for local and foreign investors to establish industry in the SEZs to achieve the basic objective of the Act.
SEZ's in the existing format is not better than EPZs and also discourages the existing industrial estates to apply for SEZ status. The Government of Sindh has also supported the viewpoint of Government of Punjab.
Keeping in view the observations mentioned above including those made by the Government of Punjab and some foreign investors, the BoI conducted a detailed analysis of SEZ through an independent legal advisor vis-à-vis customs territory, jurisdiction, incentive package and levy of duties.
The sources said, BoI also felt that some existing custom duty related provisions and lack of monitoring thereof may lead to abuse of those incentives by unscrupulous elements. Therefore, appropriate monitoring of the implementation by specialist agency i.e. Federal Board of Revenue (FBR) would be required. Another proposal to limit any possible distortions is to just give zone enterprises and developers only one time exemption for the import of machinery and to not allow this exemption to continue indefinitely as previously envisaged in the Act.
BoI has proposed amendments in the Articles 3(n), 16(2) and 37(a) of Special Economic Zone Act, 2012 with insertion of a new clause. The existing provisions and proposed amendments in these Articles are as follows; SEZ means a geographically defined and delimited area which has been notified and approved by the BoI. The SEZs shall be deemed to be outside the customs territory of Pakistan only for the purpose of this Act. This wording will be replaced with SEZ means a geographically defined and delimited area which has been notified and approved by the BoI; (ii) the wording of article 16(2)(a) i.e. SEZ shall have a minimum size of at least 50 acres will be deleted;(iii) Article 36(a) will be replaced as "exemption from all customs duties and taxes for all capital equipment imported into Pakistan for the development, operation and maintenance of a SEZ subject to verification by the FBR under the rules made by the BoI and ;(iv) Article 37(a) will be replaced with the wording "one time exemption from customs duties and taxes on import of capital equipment into the SEZ for installation in that zone enterprise subject to verification and approval of the FBR under the rules made by the BoI.
A new article will also be inserted which is as follows " if any difficulty arises in giving effect to any provision of this Act, the BoI may, by notification in the official gazette, make such provisions as may appear to be necessary for the purpose of removing such difficulty.