Pakistan puts off tax concessions for Chinese operator of Gwadar Port

ISLAMABAD: The government on Thursday deferred a move to give more sweeping tax concessions to Chinese operators of Gwadar Port and its free zone amid Beijing’s reservations that Islamabad was not honouring the promise of 23-year tax holiday for the port in true spirit.

Prime Minister Shahid Khaqan Abbasi put off approval of a summary that the Ministry of Maritime Affairs tabled in the Economic Coordination Committee (ECC) of the cabinet for necessary exemptions for Gwadar Port and the Gwadar Free Zone.

The ECC constituted a committee to remove any anomalies in the proposed amendments to the Gwadar Port Concession Agreement, according to a statement issued by the Prime Minister’s Office after the ECC meeting.

The decision to defer concessions would also save the Federal Board of Revenue (FBR) as it has already tabled the amended Finance Bill 2018 in the National Assembly. More tax concessions to the Chinese will require further amendments to the bill.

The maritime ministry informed the ECC that Chinese operators of Gwadar Port were facing problems due to ambiguity in rules and laws about the nature of tax concessions.

Three years ago, Pakistan had approved a 23-year tax holiday for the China-run Gwadar Port in an attempt to make the deep-sea Arabian port a hub of commercial activities.

The original Gwadar Port Concession Agreement was signed between the Gwadar Port Authority and Port of Singapore Authority, which the ECC approved in 2007. In February 2013, China Overseas Ports Holding Company Limited (COPHCL) took over operations of the port from the Singaporean company.

However, COPHCL contends that tax exemptions Pakistan has so far given are not “in true spirit of the tax holiday”, said officials who have been engaged with Chinese officials.

In April 2015, the ECC decided to extend the tax holiday for Gwadar Port and the Gwadar Port Free Zone from 20 years to 23 years on an understanding that the 23-year period will come into effect from 2007.

But China has now demanded that the tax holiday should be applied from 2013 instead of 2007. This would allow Chinese firms to enjoy tax-free status till 2036, even beyond the scope of China-Pakistan Long-Term Plan of CPEC that will end in 2030.

Earlier, the three-year extension had been given on the request of COPHCL.

Gwadar Port is described as the most significant strategic pearl in China’s plan of expanding its influence in the Arabian Sea – a move that India sees as a threat to its hegemonic designs.

Industrial units to be set up in the Gwadar Free Zone, being established over an area of 46,000 acres, are already entitled to the tax holiday.

However, now COPHCL has demanded that the SROs issued to give effect to these exemptions should be “notified in proper perspective as negotiated by COPHCL while negotiating the Gwadar Port Free Zone Lease Deed, which was signed during the visit of Chinese president in April 2015.”

The Chinese company has also demanded exemption from income tax on interests that Chinese lenders will earn by giving loans for port operations, according to FBR officials. They said the FBR was not keen to give that concession.

COPHCL has demanded that the concessions available to it should also be extended to its four companies. These companies are China Overseas Ports Holding Company Pakistan Private Limited, Gwadar International Terminals Limited, Gwadar Marine Services Limited and Gwadar Free Zone Company Limited.

Sources said PM Abbasi wanted the decision on further concessions to be left to the new government. The FBR was of the view that in order to give legal cover to the concessions, amendments would be required in the Income Tax Ordinance, which can be done next year.

Despite securing exemption from sales tax on local purchases by the Chinese companies operating in the Gwadar zone, the Chinese are now demanding sales tax concessions for imports made by the Chinese firms.

The Chinese have also sought sales tax and customs duty exemption for the supply of diesel, petrol and other petroleum products for 40 years.

The government has given massive customs duty exemption to COPHCL and its subsidiary companies. Against the previously approved exemption on ships used in the port and terminals, the maritime ministry on Thursday demanded customs duty exemption for all visiting ships including foreign and local fishing vessels at Gwadar Port.

It has already got customs duty exemption for all businesses to be established in the Gwadar Free Zone. COPHCL now wants to set up a duty-free shop in the zone.



PM lauded for suspending FTA talks with China

ISLAMABAD: The Pakistan Economy Watch (PEW) on Wednesday lauded the decision of Prime Minister Shahid Khaqan Abbasi to suspend the Free Trade Agreement (FTA) negotiations with China.

The decision is praiseworthy as national interests were kept supreme in it on any other consideration, it said. The local business community has also informed the government well before the talks on the second round of FTA that further relaxations to the friendly country will damage the local industry beyond repair.

The Chinese side had refused to give any relaxation to Pakistan which was not expected by our officials, he said, adding that after suspension of talks the Chinese side has shown some flexibility which is good.

Murtaza Mughal said that Pakistan and China signed an FTA on Nov 24, 2006, which boosted Pakistani exports to China from $575 million to $2.6 billion while it increased Chinese exports to Pakistan from $3.5 billion to $14 billion resulting in a large deficit.

The losses in trade with China continue to increase by the passage of every year which Pakistani exports continue to slide as China has given more relaxations to other countries.

India and Vietnam have replaced Pakistani products in the Chinese market because Pakistan’s interests were not preferred by the Chinese authorities.

He said under-invoicing by the Chinese exporters has also become a threat to the Pakistani economy which should be tackled.


Alibaba Steps Up Efforts to Bring Pakistani Exporters Onboard for its B2B Portal

Alibaba is working to get more Pakistani exporters listed on its business-to-business electronic portal. The e-commerce giant wants to boost Pakistan’s exports by drastically improving the country’s e-commerce market.

For the same purpose, Alibaba has launched a Pakistan pavilion on its website to showcase the country’s indigenous products. Even before the dedicated portal, it had over 3000 paid members and over 250,000 general members from Pakistan.

Top Sellers

The majority of the paid members from Pakistan belong to Lahore, Sialkot, and Faisalabad. Categories related to textile, surgical instruments, and sports goods feature in the top-selling list at Alibaba’s Pakistani portal.

Alibaba’s Country Manager Jason Jia, however, says that they would like to see more members from Karachi, the country’s largest urban city.

In a ceremony in Karachi that was attended by several businessmen, Jason Jia said:

“We want to work together to introduce Pakistani products to the world markets. We are looking for more from Karachi, especially in the apparel and garments sector.”

China’s biggest e-commerce company charges up to $1,500 from the paid members annually. Alibaba also partnered with local companies to provide them with support services. These companies include:

  • NextBridge,
  • EB Excels,
  • NJ Dynamic Solutions,
  • Trademor,
  • Alpharex International.

Alibaba has over 2 million shops and 260+ million buyers with operations in over 190 countries in the world. The company is also looking to attract more than two million small and medium businesses operating in Pakistan.

Ant Financial recently bought 45% stake in Telenor microfinance bank, investing $184.5 million to enhance mobile payment and digital financial services. The move has been welcomed by online businesses operating in Pakistan as it will better integrate the process of buying and selling goods online. Currently, cash-on-delivery seems to be the preferred method for online shopping in Pakistan, with 90% of the online deals amounting to Rs 10 billion.


China’s manufacturing sector posts stronger than expected growth in March

BEIJING: Growth in China’s manufacturing sector picked up more than expected in March as authorities lifted winter pollution restrictions and steel mills cranked up production as construction activity swings back into high gear.

The official Purchasing Managers’ Index (PMI) released on Saturday rose to 51.5 in March, from 50.3 in February, and was well above the 50-point mark that separates growth from contraction on a monthly basis.

The findings add to a growing amount of data which suggest that the economy of China’s manufacturing sector has carried more momentum into the first quarter from last year than analysts had expected, which should keep synchronized global growth on track for a while longer even as trade tensions build.

February’s print had been the lowest in 1-1/2 years, but many analysts suspected it was due to disruptions related to the long Lunar New Year holidays, not a sharp drop in consumption.

Indeed, the March survey showed manufacturers shifted into higher gear as usual as seasonal demand picked up at home and abroad. The sub-index for output jumped to 53.1 from 50.3 in February, while total new orders rose to 53.3 from 51.0 and export orders climbed to 51.3 from 49.0.

The China Logistics Information Centre, in a commentary on the PMI figures, said it expected first-quarter economic growth to be about 6.8 percent.

Large companies saw a modest pickup in growth, while small firms’ activity expanded marginally after shrinking in February.

Helping drive positive sentiment, exports have been better than expected in the first two months of the year, particularly for tech products, the fastest-growing segment of China’s industrial sector. Though a sub PMI for hi-tech manufacturing eased in March, growth remained solid.


This spring China’s manufacturing sector could see a major test of Chinese manufacturers’ surprising 1-1/2-year run.

In the first quarter, China’s steel companies defied expectations for a winter lull and continued to ramp up output in response to strong sales, while boosting borrowing, capital expenditure and hiring, a survey from the China Beige Book showed on Wednesday.

Production increased further after winter smog controls expired on March 15 in many areas. A separate PMI on the steel sector rose to 50.6 in March from 49.5 in February, the China Logistics Information Centre (CLIC) said.

But the burst in output has pushed steel inventories to multi-year highs, sending prices sharply lower and reducing mills’ profit margins.

At the same time, growth in property sales and new construction starts appears to be slowing, and Beijing has hit the brakes on some local governments’ infrastructure spending due to concerns over high debt levels.

Those factors, along with rising borrowing costs, should weigh on activity eventually, with economists sticking to forecasts that China’s growth will cool to around 6.5 percent by the end of the year.

Boosted by government infrastructure spending, a resilient housing market and unexpected strength in exports, China’s manufacturing and industrial firms helped the economy produce better-than-expected growth of 6.9 percent in 2017.


Pakistan-China Free Trade Agreement (FTA) on verge of finalization

ISLAMABAD: Rising disparity in bilateral trade and revenue losses will be witnessed as both Pakistan and China have reached an agreement to offer zero percent duty on 70 percent tariff lines to each other under the revised Free Trade Agreement (FTA).

A senior official aware of the developments revealed Pakistan and China are expected to sign a deal soon, reported Dawn.

The effort from Pakistan to get unilateral concessions from China failed as China showed reluctance to open its market unilaterally and demanded similar compromises from Islamabad.

This will add to Pakistan’s woes, as it will be divested from customs duty collections. Pakistan suffered losses of Rs32 billion in FY 2016-17 due to duty exemption on imports from China.

Pakistan’s revenue losses could double in case of provision of further exempt duty on imports considering the government is facing challenges on budget deficit front.

In a high-level meeting conducted on Thursday in Commerce Division, all the relevant parties were apprised regarding the details of the deals.

This understanding between the two sides was reached recently in 9th round of negotiations on China-Pakistan Free Trade Agreement (FTA) in Beijing recently.

The source shared China agreed to requite zero percent duty on 70 percent tariff lines under the second phase.

According to the suggested plan, Pakistan would decrease customs duty to zero percent on 70 percent tariff lines over 15 years, while China would reciprocate the same to it in five years’ time.

Although, the source stated the timelines weren’t finalized and will be debated further.

A written query has been forwarded to the Commerce Division regarding exact number of tariff lines to be offered for duty decreases.

Mohammad Ashraf, Commerce Division Spokesman stated that talks were still being conducted and details would be provided at a relevant time.

The source told Pakistan had been able to safeguard its interest by getting more items of its interest added in the suggested deal.

As per this suggested agreement, China would provide 90 percent tariff lines in value terms of Pakistan’s total exports for duty decrease.

And Pakistan would provide 60 percent tariff lines of total Chinese exports value to the country.

The source added that Pakistan had provided no assurance on levying of regulatory duties on items which come under purview of the FTA.


Chinese groups due next month to review CPEC projects

ISLAMABAD  –  Three Chinese experts groups are arriving Pakistan in March for preparation and early kick off of CPEC Industrial Zones, review energy project progress and explore the way forward in oil and gas sector.

The experts groups, working under Joint Working Groups, that are arriving in March includes industrial experts, experts of energy group and sub-group on oil & gas sector, official source told The Nation here Wednesday.

The source said that the energy experts will review the progress on the CPEC energy projects and will also discuss the inclusion of new hydropower projects in the CPEC portfolio. The hydro projects located in AJK, GB and KP will be the main focus of the experts’ interaction, the source added.

Regarding the industrial expert group the source said that their main focus will be the industrial cooperation particularly in the Special Economic Zones(SEZs).  

The SEZs will be developed in phases and in the first phase the economic zones of Sindh, Punjab and KP will be developed. However , the source said, that now the federal government has also accelerated work on its economic zones which is also likely be discussed with Chinese experts.

Chinese Small and Medium Enterprises (SMEs) are showing interest in the SEZs which is encouraging and will help the early completion of SEZs, the source said. Under CPEC China and Pakistan have agreed to establish nine SEZs throughout Pakistan.

The third group is a sub-group on oil and gas, of the main Joint Working Group on Energy, is coming to Pakistan to further explore ways for the oil and gas cooperation between the two countries under CPEC.

In July last year Pakistan and China agreed to establish an oil and gas sub-group under the Energy Working Group (EWG) aimed at facilitating the existing and future oil and gas sector projects.

Later on, oil and gas was incorporated in the CPEC Long Term Plan (LTP).

Earlier under the Short and Medium Term Plan of CPEC China was developing energy projects in Pakistan which was further expended under LTP.

As per the LTP “China and Pakistan should strengthen cooperation in the electricity and power grids, and focus on promoting the construction of major projects of Thermal power and renewable power generation, and thermal power, hydropower, coal gasification, supporting power transmission networks, in order to enhance its power transmission and supply reliability.

The experts from both countries will explore the possibilities of setting up refineries, storages and oil and gas pipelines along the CPEC route.

“We want cooperation in oil and gas sector in a way to make it win win situation for both the countries,” the source said. The source said that investment in the oil and gas sector will further enhance the CPEC portfolio.

It is pertinent to mention here that separately the government of Pakistan is planning to  develop a mega oil city at Gwadar under the China-Pakistan Economic Corridor and 80,000 acres of land is being acquired for the purpose.


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Rs 10bn worth benefits given to Chinese firm through tax exemption

ISLAMABAD: Senate’ Standing Committee on Finance, Revenue, Economic Affairs and Narcotics Control informed that around Rs 10 billion worth benefits were given to a Chinese company working on the Multan-Sukkur Motorway in the form of tax exemptions.

Considering the Calling Attention Notice moved by Senators Muhammad Daud Khan Achakzai, Muhammad Mohsin Khan Leghari, Barrister Murtaza Wahab, Sitar Ayaz, Sassui Palijo, Nauman Wazir Khattak, Mukthiar Ahmed Dhamrah Aajiz, Kamil Ali Agha, Saleem Mandviwalla, Ahmed Hassan, Farhatullah Babar and Ilyas Ahmed Bilour regarding the issuance of SRO 47(1)12018, dated January 23, 2018, the committee asked the Federal Board of Revenue (FBR) that how the Chinese firm was given exemption depriving the local firms.

Pakistan Peoples Party (PPP) Senator Murtaza Wahab stated that the FBR granted this exemption at a time when the construction work was only 37 per cent complete without seeking approval of the federal cabinet. He said as per the constitution FBR has no right to issue SRO especially benefiting a foreign firm.

FBR Inland Revenues (IR) Policy Member Dr Iqbal replied that the Economic Coordination Committee (ECC) approved the exemption for this Chinese construction company which was later on ratified by the federal cabinet.

On the question of granting exemption after completion of 37 per cent work of the project, the FBR replied that this summary was moved by the Ministry of Communication so only they can give a reply to this question in more detail. The committee decided to summon the high-ups of the Ministry of Communication for seeking further details about this project in the next meeting.

Senator Nauman Wazir Khattak informed the committee that the Supreme Court (SC) judgment clearly defines that the federal cabinet is the competent authority to issue SRO and recommended the finance committee to declare the said SRO illegal.

According to him, former finance minister Ishaq Dar had categorically stated on the Senate floor that all imports of China-Pakistan Economic Corridor (CPEC) would be non-discriminatory and no specific exemptions for CPEC projects for import of material would be given to Chinese companies.

At least 30 per cent work on Multan-Sukkur M5 Motorway has been completed and now the Chinese company is being given exemption from government duties whereas, in the original tender documents and the tender awarded to the company, the said duty was included in the project cost. In the original bid documents, all government duties were included. Exempting these duties at this point in time is unfair and unjust with other bidders who took part in the bid.

According to Khatak in the initial PC-1, the Bill of Quantities (BoQ) and specifications were different and in the final award, the BoQs have been reduced without informing other bidders and getting their rates as per the changed BoQs.

“The tender was floated and the bid was received a number of times, wherein there is a dramatic variation in the prices. Finally, the price was negotiated and BoQs were changed for this specific company. This is a violation of PPRA rules,” he said and recommended NAB to investigate all such matters.