Pakistan Approves Massive Tax Exemptions for Gwadar Port Operators

Pakistan approved on Monday (21-May-2016) sweeping tax concessions for Chinese operators at the deep-sea Gwadar port and businesses that will operate in the Gwadar Free Zone for up to 40 years to make the Arabian Sea port an important node in Beijing’s ‘One-Belt, One-Road’ strategic initiative.

The Economic Coordination Committee (ECC) of the Cabinet took the decision on a day when Iran, India and Afghanistan signed a trilateral transit agreement to counter the China-Pakistan Economic Corridor (CPEC).

The ECC accepted most of the recommendations made by its subcommittee for extending concessions to the China Overseas Ports Holding Company Limited (COPHCL), according to the Ministry of Finance.

China is developing the Gwadar port as a strategic and commercial hub under its ‘One-Belt One-Road’ initiative that promises shared regional prosperity. CPEC is one of many arteries of the ‘One-Belt One-Road’.

In 2013, Pakistan handed over the Gwadar port to the Chinese company by annulling a deal with a Singapore company that could not develop the port after taking over in 2007.  The ECC further approved amendments in the Gwadar Port Concession Agreement for operating and developing the Gwadar port and free zone.

Income Tax

In a major move, the ECC approved a complete income tax holiday for 23 years to businesses that will be established in the Gwadar Free Zone. A Statutory Regulatory Order to that effect will be issued, and the changes will come into force the day the order is issued.

Under the move, the concession will extend to contractors and subcontractors and COPHCL companies for 20 years. The ECC has also exempted the COPHCL and its operating companies from paying the minimum 1% income tax.  Moreover, the ECC approved complete exemption from the 12.5% tax on dividend income and withholding tax for the COPHCL, and its operating companies, including the China Overseas Ports Holding Company Pakistan Private Limited, Gwadar International Terminals Limited, Gwadar Marines Services Limited and Gwadar Free Zone Company Limited.

Pakistan has also granted tax exemption on profit on debt generated by those Chinese financial institutions that will lend money for construction and development purposes.

Sales Tax & Excise Duty

The ECC also exempted the COPHCL, its operating companies and contractors from sales tax and federal excise duty. A 23-year exemption from sales tax and federal excise duty has also been granted to businesses that will be established inside the Gwadar Free Zone. However, if these businesses make supplies and sales outside the free zone, they will be subject to taxation.

Customs Duty

Pakistan approved customs duty exemption for the COPHCL, its operating companies, contractors and subcontractors for a period of 40 years on import of equipment, materials, plants, machinery, appliances and accessories for construction of Gwadar Port and the associated Free Zone.

The exemption has also been extended on import of ship bunker oils for supplying fuels and lubricants to ships used in the port and its terminals.

A 23-year duties exemption has been granted on port related businesses to be established in the free zone. The COPHCL can also import vehicles free of any duty.