China-Pakistan Economic Corridor (CPEC) has entered the second phase of development. Gwadar Port, the soul of the CPEC, has already been granted various facilities enabling it to become a trade and logistical hub for the region. At the conclusion of Prime Minister Imran Khan’s two-day visit to Beijing last week, the two countries in a joint statement maintained that the second phase of the CPEC will promote industrial and socio-economic development in Pakistan. The statement said, “the two sides expressed determination to speedily execute CPEC so that its growth potential can be fully realized making it a high-quality demonstration project for the Belt and Road Initiative.”
A few days before Imran Khan’s visit to China, the government removed a key bottleneck in the way of populating the industrial estate through approval of legislative changes to address a longstanding issue of tax concessions for Gwadar Port and Gwadar Free Zone. For the last three years, China wanted Pakistan to amend the Income Tax Ordinance, Sales Tax Act and Customs Act. The decision of amendment was recommended by the National Development Council (NDC), which is chaired by the Prime Minister Imran Khan with Army Chief and the team of members. The new tax concessions have only be granted to the Gwadar zone. China Overseas Port Holding Company Limited (COPHCL), the operator of Gwadar Port, has been granted tax exemption for 23 years to help establish industrial units at the Gwadar Port. This decision was a step towards rearrangement of the Chinese manufacturing industry in Gwadar, and busying the local labor.
In February 2013, the COPHCL took over operations of the port from a Singaporean firm. The concession agreement included a tax holiday for both the operators of Gwadar Port and the businesses being set up there. The country approved income tax exemption for Gwadar Free Zone on the income of operating companies from port operations. The income tax holiday was not only extended to COPHC but also to Pakistan Private Limited, Gwadar Marine Services, and Gwadar Free Zone Company. Gwadar Port has the potential to transform the Pakistan’s economic status forever. It will enjoy prime importance because of its geo-strategic location marking the confluence of South Asia, West Asia and Central Asia. The Gwadar Free Trade Zone will open up many more possibilities for the region. Gwadar, after completion of port project is expected to become the ‘boom’ town in the next few years.
Islamabad also approved sales tax and federal excise duty exemptions on the import of machinery, equipment, and material either for use in Gwadar Free Zone or for export, subject to the condition that all such imports were made by investors of the free zone. It approved tax exemptions for the businesses to be established in the Gwadar Free Zone area for a period of 23 years with effect from July 2016 on their packaging, distribution, stuffing and de-stuffing, CFS, container yard, warehousing including cool and cold rooms, transhipment, labeling, light-end assembly, re-assembly, imports, exports and their value addition, and all related commercial activities.
Gwadar Port is expected to serve as secure outlet for the Middle East and Central Asia oil and gas supplies through a well defined corridor passing through Pakistan. This year, Saudi Arabia already agreed to establish to set up $11 billion oil refinery and petrochemical complex at the Gwadar Port. The proposed oil facility in Gwadar would help bring down the country’s oil import bill by $1.2 billion annually. Pakistan’s average annual oil consumption is around 26 million tons, out of which 13.5 million tons is met through local production of eight existing oil refineries and rest of the 50 percent crude oil is imported to meet the energy needs. With the construction of a state-of-the-art oil refinery and petrochemical complex in Gwadar port city, Pakistan would be able to capture markets in China and landlocked Central Asian states where fuel supply takes weeks to reach through other routes. According to one estimate, the fuel transportation to China through the CPEC would take just seven days as opposed to the western route that takes almost 40 days. The proposed oil facility would help refine and store imported oil for onward transportation to China and develop fuel supply chain for the landlocked Central Asian counties.
Prior to the visit to China by Prime Minister Khan, President Dr Arif Alvi on this month promulgated two ordinances to set up the CPEC Authority and grant tax concessions to the Gwadar port and its free zone in a move to show Islamabad’s seriousness in Beijing’s $60 billion CPEC initiative. The CPEC Authority Ordinance 2019 and The Tax Laws (Amendment) Ordinance 2019 are aimed to set up a new body to oversee and implement CPEC and give income tax exemptions to Gwadar port and its free zone. The government has fully empowered the CPEC Authority, which would make its own budget and its executives would be immune to legal prosecutions.
The CPEC authority will manage and control the development work as carried out by the CPEC secretariat. The authority has been placed under the Planning, Development and Reform Division and it will have the powers to enter into contracts, acquire and hold property, both movable and immovable. There will be a CPEC Fund at the disposal of the authority to meet all expenses and charges. The authority has been tasked with building narrative of CPEC and undertaking research for long-term planning. The authority will hold at least one quarterly meeting. There is also a plan for setting up a CPEC business council under the authority.
On administrative side, the CPEC authority will consist of a chairperson, chief executive officer, executive director (operations), executive director (research) and six members. The appointing authority of the chairperson, executive directors and members is the prime minister who can appoint them for a period of four years. The CEO will be minimum grade-20 civil servant. Complete immunity has been ensured to the authority leadership and no case can be filed against them. The chairperson, executive directors and members cannot be civil servants. The top hierarchy of the authority will be deemed as public servants.