Pakistan moves to secure more One Belt, One Road investment
Pakistan is introducing extensive, long-term tax concessions for Chinese companies operating at the port of Gwadar on the Arabian Sea to attract greater investment under China’s One Belt, One Road programme.
The Pakistani cabinet's Economic Co-ordination Committee (ECC) approved tax exemption for at least two decades for businesses that set up in the newly established Gwadar Free Zone adjacent to the port facility.
Gwadar is currently leased out to China Overseas Ports Holding Company Limited (COPHCL), which is working on enlarging the port’s annual cargo-handling capacity to 1 million tonnes, a project expected to complete next year.
The tax exemption plan covers COPHCL and its subsidiaries and contractors, which are already exempt from the country’s minimum income tax as well as its 12.5% tax on dividend income.
Chinese financial institutions' profits from loans for constructing and developing the port and free zone are also tax exempt.
COPHCL and its subsidiaries are exempt from sales tax and federal excise duty. The companies will also pay no customs duty for 40 years on imports of equipment, materials, plants, machinery, appliances, and accessories for developing the port and free zone, as well as no duty on imported bunkers and vehicles.
A 23-year exemption from sales tax and federal excise duty is being granted to all businesses established inside the free zone, although supplies and sales outside the zone are subject to taxation. It is hoped that shoreside investment by Chinese companies will drive growth in throughput at the port.
China is developing the Gwadar port and zone as a strategic and commercial hub under its One Belt, One Road initiative.
The China-Pakistan Economic Corridor (CPEC) is an important artery in the programme and the Chinese government has said it will invest USD45 billion in CPEC projects to 2027, Pakistan’s largest ever package of foreign direct investment.
CPEC includes developing Pakistan’s three major ports at Gwadar, Karachi, and Qasim. Planned investment in road and rail links covers the construction of a highway linking Karachi and Lahore and the upgrade of the Karakorum highway. Substantial investment is also slated for energy projects.
Pakistan leased Gwadar to COPHCL in 2013 after annulling a deal with a Singapore company that had been working to develop the port since 2007. At the time the ECC amended the concession agreement with new terms to operate and develop the Gwadar port and free zone.
China is understood to be dissatisfied with aspects of the Gwadar development project including the delay in awarding a contract for a new USD2 billion gas pipeline and LNG terminal at the port. While a Chinese company has submitted a bid, this has yet to be accepted, essential for releasing Pakistani government funding to get the project going.