KARACHI: Pakistan’s 23-year income tax holiday and exemptions of sales tax and customs duties to Chinese operators in Gwadar Port and its free zone is expected to create an environment that’s conducive for industrialization in the country, officials said on Monday.

“The tax holiday is for 23 years. After the exemption, the area is expected to witness an industrial boom. Earlier, there were only talks of exemptions sans any material progress. This is the continuation of the vision of government to set up a special economic zone in the country,” Kauda Babar, member of Pakistan’s Senate Standing Committee on the China Pakistan Economic Corridor (CPEC) told Arab News.

The move, he added, could be a major boost for Chinese companies who could “either set up new factories or relocate their units.”

Last month, Pakistan promulgated the ‘Tax Laws Ordinance, 2019’ to amend certain laws, including the Customs Act, 1969 (Act IV of 1969) and the Sales Tax Act, 1990. 

The ordinance was issued in response to a long-standing demand by Chinese companies to be exempted from the sales tax in order to expedite their operations. 

Pakistan has also decided to extend exemptions on equipments and material purchased locally for industrial units located in the Gwadar Free Zone (GFZ). 

The initiative, proposed by the Ministry of Maritime Affairs, was initially resisted by tax authorities who later agreed to an offer of concession through a money bill which is expected to be presented in the parliament soon.

Last week, Chinese Ambassador to Pakistan, Yao Jing, had said that China is setting up 19 factories in Gwadar.

In a tangible development, the Sino-Pak Tire Manufacturing Joint Venture also signed an agreement to invest $600 million to set up a tire manufacturing facility in Gwadar to cater to the growing needs of the market.

The GFZ is being managed by the Chinese but tax concession can be availed by any company operating in the free zone. “Pakistani manufacturers can purchase or rent space in free zone. They will be charged only $8 per square meter per year on lease up to 99 years”, the senator who hails from Gwadar said.

He added that all relevant infrastructure is ready and “if they (investors) want to start setting up factories tomorrow they can. There is no water and power issues in Gwadar.”

Senator Babar further implored the local business communities to take full advantage of the emerging opportunities in Gwadar and its strategic location. “I have talked to many businessmen and they say that the 8/square meter per year is not the big amount,” he added.

However, Pakistani businessmen say they are also investing in other active special economic zones located in the four provinces of the country with a 10-year tax relaxation.

“Government has given an incentive of a one-time duty free import of machinery and many investors have gone for other zones such as Karachi, Lahore and Peshawar and in Punjab, mainly due to proximity,” Syed Mazhar Ali Nasir, Patron in Chief of the Pakistan China business council of FPCCI, told Arab News.

“The advantage of Gwadar is that the imported material will come into the zone without duty and would be reprocessed to export. Joint ventures are preferring Gwadar,” he added.

Senator Babar, for his part, said that he has been requesting the government to declare the the complete area of Gwadar as tax free. “That will benefit the locals as well be a major part of mega developments.”