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Tax incentives at SEZs: FBR vets PBIT proposal

Tax incentives at SEZs: FBR vets PBIT proposal

ISLAMABAD: The Federal Board of Revenue is contemplating the proposal of Punjab Board of Investment & Trade (PBIT), seeking amendment to Special Economic Zones Act, 2012 (SEZ Act) and SEZ Rules, 2013 to pave the way for new tax incentives to investors willing to establish their business at SEZs.

As per details, the PBIT has submitted a detailed proposal for amend to the SEZ Act to boost investment activities. The SEZ Law provides financial incentives/exemptions to prospective zone enterprises like custom duties and taxes on import of capital goods (for installation) and tax holiday on income for a period of 10 years.

One of the major tax incentives proposed by the PBIT is to allow reduced/nil custom duties on sale of products/goods from SEZ to other areas of the country. The FBR has already provided extensive framework for exemptions from duty on import of plant, machinery, equipment and apparatus including capital goods through SRO 575(1)/2006.

The enterprises are already getting benefit from zero-percent custom duty on the import of agricultural machinery, machinery and equipment for development of grain handling and storage facilities, cold chain machinery and equipment, machinery, equipment, materials, capital goods, specialised vehicles (4×4 non-luxury), i.e, single or double cabin pickups, accessories, spares, chemicals and consumables meant for mineral exploration phase, construction machinery, equipment and specialized vehicles, excluding passenger vehicles, imported on temporary basis as required for the exploration phase, coal mining machinery, equipment, spares including vehicles for site use, heat ventilation air conditioner, items with dedicated use of [renewable source of energy like solar, wind, geothermal etc and specific machinery and equipment imported by surgical industry.

Moreover, the Federal government through SRO 727(I)/2011 issued on July 1, 2011 exempted “sales tax on import of plant and machinery not manufactured locally and having no compatible local substitutes.” The Export Processing Zones Ordinance, 1980 and Rules made thereunder provide incentives including exemption from custom duty and sales tax for all goods imported into and exported from the Export Processing Zones (S.R.O. 881(1)/80), duty-free imports of machinery, equipment & material. No sales tax on inputs like electricity/gas bills, duty-free vehicles allowed under certain condition and no sales tax on input goods encompassing electricity/gas bills.

Similarly, exemptions available to industries under Income Tax Ordinance, 2001 revealed that profits and gains derived by a taxpayer from an industrial undertaking set up between July 1, 1995, and December 31, 2002 for a period of 10 years beginning from the month in which the undertaking is set up or commercial production is commenced, whichever is the later. Any income chargeable under the head “capital gains” derived by a person from an industrial undertaking set up in an area declared by the Federal Government to be a “Zone” within the meaning of the Export Processing Zones Authority Ordinance, 1980, income derived by Gwadar Free Zone Company Ltd (Clause 126A, Schedule to IT Ord), profits and gains derived by a taxpayer from an industrial undertaking set up in Larkana Industrial Estate between the July 1, 2008 and June, 2013, for a period of ten years beginning with the month in which the industrial undertaking is set up or commercial production commenced, whichever is the later, profit and gains derived by a taxpayer from an industrial undertaking set up in the Gwadar declared by the Federal Government to be a Zone within the meaning of Export Processing Zone Authority Ordinance, 1980, profits derived by a taxpayer located in the most affected and moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA for a period of, three years starting from the tax year 2010 provided that this concession shall not be available to the manufacturers and suppliers of cement, sugar, beverages and cigarettes.

The FBR has also provided allowable deductions which serve to reduce taxable income, one time deduction of 25 percent called the “First Allowance,” allowed in the form of depreciation expense on Plant and Machinery and 25 percent on Building respectively. For Subsequent years the rate is 15 percent.