ISLAMABAD: The Sindh government has denied to contribute to Pakistan China Economic Corridor’s (CPEC) special economic zone for promotion of industries approved by federal cabinet.
In a letter, the Sindh Board of Investment (SBI) has asked the federal government to review the incentive package.
In May this year, Pakistan approved the Special Incentive Package for the Relocation of Industries from China for bringing Chinese investment in nine SEZs to be set up under the China-Pakistan Economic Corridor (CPEC).
The package had been developed on the demand of China made at the sixth meeting of the CPEC Joint Cooperation Committee (JCC) in Beijing in December last year.
The Sindh government’s objection may further complicate matters as there is hardly any meaningful progress on the nine sites identified for setting up these zones.
The Punjab government has already removed Sheikhupura SEZ and relocated it to Faisalabad. The federal government is also facing problems in getting land for setting up a zone near Islamabad.
The package is primarily aimed at those Chinese industrial units declared sunset industries by Beijing and may be relocated to Pakistan, which may create hundreds of thousands of jobs.
In the sixth JCC meeting, the two countries approved the nine SEZs, which would be established in Pakistan’s four provinces, Azad Jammu and Kashmir, Gilgit-Baltistan, Fata and Islamabad Capital Territory.
The special package is exclusively meant for those investors who will invest in the nine CPEC economic zones and existing SEZs are not eligible for the package.
“The proposal of giving incentives was quickly developed with brief consultations with provinces,” wrote SBI Chairperson Naheed Memon in the letter.
However, federal Board of Investment (BoI) Acting Secretary Shah Jahan Shah countered that four meetings had been held with Sindh representatives and their concerns were accommodated.
The government has offered about half a dozen more incentives to the investors that will invest in CPEC zones. The cost of three incentives will have to be borne by the provinces directly or indirectly.
The first incentive is that Pakistan will pick 50% of the mark-up cost of loans that investors will take for investment in CPEC zones. This support will be provided by the provinces where the zones are located and is a matter of big concern for Sindh.
“The 50% mark-up subsidy by provinces is unreasonable,” wrote Memon.
Responding to Sindh’s objections, Shah said the subsidy would be offered only on the loans that would be taken in Pakistani currency.
In the second incentive, Pakistan will pick 50% of the freight subsidy on inland transportation of plant and machinery for installation and development in the priority SEZs.
Memon, however, said freight subsidy payments by the provinces were questionable and the central government should adjust the incentive against import tariffs.
“The cost of freight subsidy will be borne by the federal government and Sindh’s objection is unrealistic,” said Riffat Pervaiz, BoI Director General Policy and Strategy.
In the third incentive, the respective provincial governments will provide plots by taking half of the payment in advance and the remaining in four biannual installments.
These governments will offer one-window facility at the SEZs by either delegating the authority for implementing labour, environmental and other laws and tax collection to an SEZ authority or by placing a representative in the SEZ office, according to the fourth incentive.
Under the package, developers of the SEZs will be entitled to income tax holidays as well as customs duty relief on the import of equipment and machinery.
The developers will be allowed to purchase gas, electricity and other utilities from the utility companies in bulk and supply to enterprises at rates approved by the SEZ authority. The developers will be permitted to rent out sheds for industrial use.
The incentive package has been shared with an expert-level delegation of the National Development and Reform Commission (NDRC) of China that visited Pakistan in the first half of July. However, China has not yet given its response.
Shah emphasised that there was no discrimination between Chinese and other investors. Whosoever invests in CPEC zones – Chinese, Pakistani or nationals of a third country he will be equally entitled to these benefits.