Terms Gwadar port tax concessions through finance bill ‘unconstitutional’
ISLAMABAD: The Senate panel on finance directed the government on Tuesday to produce Pak-China bilateral agreement on Gwadar port after it found the budget proposal to grant up to 40 years tax exemptions to the port city operators “unconstitutional”.
The Senate Standing Committee on Finance and Revenue, which kickstarted scrutiny of Finance Bill 2020, found serious violations and termed the majority of the proposed amendments in the tax laws against the Constitution.
Veteran lawyer, Senator Farooq H Naeek of the Pakistan Peoples Party (PPP) chairs the all-important body of the Senate – the upper house of parliament.
Pakistan Tehreek-e-Insaf’s (PTI) Senator Mohsin Aziz first demanded that the government should produce the agreement that governs the Gwadar Port and Gwadar Free Zone after the senator raised serious objections to the proposal of giving 23 years to 40 years concessions to Gwadar Port operators, their contractors, sub-contractors and sub-contractors of the sub-contractors.
The tax concessions and exemptions have been incorporated in the finance bill after the government could not get these amendments, proposed in October, last year, through an ordinance, passed from the Parliament.
In October last year, “The CPEC Authority Ordinance 2019” and “The Tax Laws (Amendment) Ordinance 2019” had been promulgated to set up a new body to oversee and implement CPEC and give income tax, sales tax and custom duties exemptions to Gwadar port and Gwadar Free Zone. However, both these ordinances have lapsed.
Farooq Naek maintained that the 40-year taxes and duties exemption do not fall under Article 73 of the Constitution and said that the government should introduce a normal piece of legislation for giving these exemptions.
He said that the government can give these exemptions through a separate bill instead of inserting them in the finance bill.
In case of the finance bill, the senate does not have voting powers, unlike normal legislation where both houses of the Parliament have equal right to vote.
The government has proposed that the equipment, plants and machinery imported by Gwadar International Terminals Limited and Gwadar Marine Services Limited shall be exempted from payments of duties for 40 years, starting from June 2020.
It also proposed in the finance bill that “all visiting ships including foreign and local and fishing vessels at Gwadar Port will be will exempted from payment of duties”.
Similarly, it sought exemption duties on imports by Gwadar International Terminals Limited and Gwadar Marine Services Limited for a period of 23 years with effect from July 2016.
Pakistan Peoples Party Senator Sherry Rehman was of the view that nothing can be done as the government had already entered into an agreement with China.
Federal Board of Revenue policy customs member Javed Ghani remarked that the Ministry of Maritime Affairs had proposed these amendments,.
The committee asked the government to produce the agreement on Wednesday (today), saying it was going to reject all these amendments.
In case of finance bill, the senate’s recommendations are not binding on the government.
“We need to know who are the contractors, sub-contractors and their sub-contractors before endorsing these exemptions,” Pakistan Muslim League-Nawaz (PML-N) Senator Dr Musadaq Malik said.
“It is vulgar to bring names of the companies in tax laws, as the concessions and exemptions should not be company or region specific rather the whole country should be the beneficiary,” he added.
He repeatedly asked the names of the owners of the companies, which the customs department could not provide.
Senator Mohsin Aziz apprehended that the duty-free material and equipment imported for Gwadar could sneak into other parts of the country, which may make the local businesses uncompetitive.
“The committee cannot give umbrella cover to all the amendments, as many of these do not fall under the Article 73 of the Constitution,” Malik said.
Senator Aziz agreed that the penalties could not be imposed or increased through the finance bill but noted that the tax regulation functions fall within the ambit of the finance bill.
The government has also proposed to amend the Petroleum Levy Act of 1961 through the finance bill to improve its collection mechanism – an amendment that the committee also found against the Constitutional scheme.
The only amendment that the standing committee termed in the Customs Act in line with the Constitution was the proposal to set a minimum limit of a product to charge duties on imports of goods.
The government has proposed that if the value of the imported goods does not exceed Rs5,000, then no duty should be charged.
The committee recommended to enhance the limit to Rs10,000, which it observed would facilitate online trading.
China is developing Gwadar port as a strategic and commercial hub under its Belt and Road Initiative.
In February 2013, China Overseas Port Holding Company Limited (COPHCL) took over operations of the port from a Singaporean company.
The concession agreement included a tax holiday for both the operators of Gwadar port and the businesses being set up there.
President Arif Alvi had promulgated an ordinance to give income tax exemption for Gwadar Free Zone on the income of operating companies from port operations.
The income tax holiday was also extended to China Overseas Port Holding Company Pakistan Private Limited, Gwadar Marine Services, and Gwadar Free Zone Company