ISLAMABAD: The government has decided to finance the cost of provision of gas and electricity to all the Special Economic Zones (SEZs) out of the Public Sector Development Programme (PSDP) and withdraw provincial mark-up support and federal freight subsidy to SEZs under the China-Pakistan Economic Corridor (CPEC).
The Economic Coordination Committee (ECC) of the Cabinet “directed the Board of Investment (BoI) to submit the case to the cabinet for withdrawal of the two additional incentive packages for SEZs under the CPEC programme — mark-up support by the provincial governments and freight subsidy by the federal government”, according to minutes of a recent meeting of the ECC.
The committee also decided that the “cost of provision of utilities — gas and electricity — to SEZs will be met through the PSDP” and directed the power division to “prepare a comprehensive plan, in consultation with provincial governments for provision of uninterrupted electricity to existing all industrial zones” and present it to the ECC within a month.
The ECC directed the petroleum ministry to devise a plan for provision of gas to all existing industrial zones in consultation with the provincial governments and BoI and present it within a month. The BoI was directed to move a case for amendments to the SEZs Act of 2012 to further empower the provincial governments to process application of SEZs and complete the processing of SEZs’ proposals within 45 days mainly focusing on confirmation of availability of gas and electricity.
The BoI had raised a series of questions over the existing governance dealing with SEZs, resulting in slow or sub-optimal progress, or failures based on similar experiences in China, India and Vietnam. It was reported that the key issues facing the SEZs in Pakistan were no regulatory and enforcement body, misuse of SEZs, absence of any law to bind relocation of local industry inside SEZs and non-functional layers of institutions (SEZ authorities and SEZs committees) and role duplication of approvals committee and board of approvals.
The meeting was told that China, India and Vietnam had given tax exemptions to the investors for different periods on their export of products from SEZs. Pakistan had given income tax exemption for the developer for five years and then tax exemption for the enterprise for 10 years if in production by June 30, 2020, and five years for production thereafter. It was stated that pioneer industries scheme in SEZs also enjoyed corporate income holidays for five years and duty- and tax-free import of capital goods. Similarly, the Auto Policy, 2016-21, also provided tax incentives for auto manufacturers in SEZs.
On top of that, additional incentive package for prioritised SEZs package under the CPEC programme for establishment or relocation of industry from abroad prepared in consultation with all the provinces, Gilgit-Baltistan, Azad Jammu and Kashmir and Fata was approved by the Cabinet on in May 2017.
The provinces were already providing plots on installments and mark-up support and the federal government was giving freight subsidy. The CPEC incentive package also offered one-window operation by SEZAs and bulk purchase of utilities by the developer, particularly electricity and rent out sheds for industrial use.
The BoI demanded that mark-up support by the provinces and freight subsidy by the centre should be withdrawn to ensure a level-playing field to all investors irrespective of SEZs under the CPEC programme or otherwise.
The ECC observed that the provision of electricity and gas was the responsibility of the federal government and without these utilities no SEZ could be developed. Therefore, it decided to ensure provision of gas and electricity for attracting prospective investors to establish industry in the SEZs.
The committee directed the provincial governments to speed up the work on establishment of SEZs and provision of requisite infrastructure for establishment of industries.
The meeting noted that Balochistan was the most backward province and required special attention for establishment of SEZs to improve its economy and also generate employment for the local people. It noted that only Bostan industrial zone had been included in the SEZs while Hub and Gwadar industrial zones which were very important for establishment of industries, should also be included in the SEZs in order to have incentives. It was informed that a free trade zone was already being established in Gwadar under the CPEC programme.
The ECC directed that Khyber Pakhtunkhwa, which possessed a number of beautiful areas, should be facilitated to play a vital role in development of tourism to attract foreign tourists. It asked the BoI to prepare a framework for development of tourist destinations (SEZs) in Khyber Pakhtunkhwa in consultation with its government.
The committee directed that the requirement of minimum land needed by an investor or industry should also be reviewed as there was now a trend for vertical development.
The BoI was asked to revamp its processes to reduce the role of the federal government in the approval of SEZs in line with the devolved nature of the subject. The meeting noted with concern that not more than 10 per cent electricity and gas was available at all the 10 SEZs currently considered in progress, including three prioritised under the CPEC and seven new in the pipeline.
Published in Dawn, March 4th, 2019