ISLAMABAD: The recent unearthed tax evasion by Chinese company has stirred a debate at Federal Board of Revenue (FBR) about loss to revenue collection due to tax exemptions granted to Chinese companies.
In 2016, income generated by contractors and sub-contractors of those five companies China Overseas Ports Holding Company Limited, the China Overseas Ports Holding Company Pakistan (Private) Limited, the Gwadar International Terminal Limited, the Gwadar Marine Services Limited and the Gwadar Free Zone Company Limited from Gwadar Port operations granted exemption from income tax for 23 years, with effect from Feb 6, 2007″ a source at FBR told Customs Today.
The source told that besides, income generated by contractors and sub-contractors of those five companies from port operations has been granted income tax exemption for 23 years from July 1, 2016. Similarly, income and interest earned by a foreign lender or a local bank with more than 75% government or State Bank of Pakistan shareholding by virtue of a financing agreement with the China Overseas Ports Holding Company Limited are exempt from income tax for 23 years with effect from July 1, 2016.
The source further told that dividends received by the China Overseas Ports Holding Company from the China Overseas Ports Holding Company Pakistan (Private) Limited, the Gwadar International Terminal Limited, the Gwadar Marine Services Limited and the Gwadar Free Zone Company Limited have also been granted income tax exemption for 23 years from July 1, 2016.
In 2016, the source said that sweeping tax concessions for Chinese operators at the deep-sea Gwadar port and businesses operating in the Gwadar Free Zone were granted for up to 40 years. The Economic Coordination Committee (ECC) of the Cabinet took the decision on the day Iran, India and Afghanistan signed a trilateral transit agreement to counter the China-Pakistan Economic Corridor (CPEC).
“Now, some concerned quarters at FBR’s policy level are about the opinion that FBR must conduct a study to measure up the possible tune loss to the revenue in last two years along with an assessment of revenue loss in the remaining period of tax exemptions” the source added.
The source said that last year, Finance Ministry said that Chinese investors in the $56 billion China-Pakistan Economic Corridor (CPEC) are enjoyed all sorts of tax breaks from customs, income, sales, federal excise and withholding taxes. As per some assessments the tune of revenue loss was around Rs150 billion at that time.
But the source said that exemptions from levy of customs duty at import stage were specifically offered to Chinese contractors for a few projects of roads, mass transit and Gwadar port. These exemptions include exemption of customs duties on the import of plant machinery and equipment, if not manufactured locally.
Under this situation, the source said that FBR was of the view that as per general impression about Chinese investors in Pakistan was not positive because they were not bringing foreign direct investment (FDI) in the form of money or installing the manufacturing products as well as not using Pakistani labour. So they are neither promoting Pakistani manufacturing sector nor human resource development because they are bringing Chinese work force for the projects under execution.
Therefore, the source said that 23 years tax exemptions were casting negative impacts on Pakistani economic outlook in the form of revenue loss as well as non development of other sectors. Similarly, there is no withholding tax on their financial transactions; otherwise withholding tax was levied on imports and financial transactions; therefore, it was also impacting the banking sector’s revenue as well as revenue of the FBR because withholding tax was not being collected.
This is why; it is casting negative impacts on the investment activities because requisite share of tax is being lost besides fed up both domestic and international investors over discriminatory treatments as compared to Chinese companies.
However, the source said that FBR had not conducted any formal study to gauge up the possible tune of loss to the national exchequer due to these tax exemptions, but there was a strong realization at higher level to conduct such study to figure out the volume of revenue loss in remaining period of the tax exemptions.
“This sense is getting strength from the fact’, the source said that there were a number of Chinese companies which were enjoying the tax exemptions in the disguise of China Pakistan Economic Corridor (CPEC) but factually dealing with other sectors than CPEC; which was blatant mischief to the revenue authorities.